The holiday decorations are barely put away and the market has stopped wishing us a good start to the New Year. The news cycle is feasting on Chinese economic slowdown, stock market volatility, oil prices and currency devaluation. As we often do during times like these we remind ourselves that we are long-term investors. What does it mean to be a long-term investor? A long-term investor is someone who believes that over time the global economy will grow and valuations on equity investments will appreciate. If we no longer believe that this will occur then it would be time to completely rethink our expectations on working, spending, and saving, not just our investment strategy. Let’s look at what happened this week and ask ourselves whether we should abandon the long-term promise.
China
China had a difficult week due to a number of factors not least of which is the Chinese are still trying to figure out how to actually run a stock market. Our stock market is nearly 200 years old. China’s is less than 25 years old. We should expect that they aren’t going to every move right. They are starting to lift some trading restrictions and this created selling pressure. Yes, their economy is slowing down. We’ve know this for a while. The specifics on the Chinese economy are also hard to discern given the government’s control over most everything. Until the markets get more comfortable with China’s actual impact on the US and other markets, China will, at various times, create market volatility.
The US Economy
The US economy continues to give mixed signals. Improving employment numbers today! Slower manufacturing numbers tomorrow? For some time we have voiced our agreement with the lower, slower camp and still believe that will be the case for the foreseeable future. Maybe not great for stocks but not a set up for disaster either. So is it time to abandon our long-term approach? Is this the beginning of a deep bear market? We don’t believe so. It is much better to be patient during the difficult markets so that we don’t miss the good markets. To this point see the chart below. Forget about the impact on missing the best years. Look at the difference it makes to miss the best days!
This not to say we are sitting on our hands. We will send out our annual review and our outlook for 2016 in a few days and identify changes to our strategy in light of our view that this will likely be a choppy year even if eventually markets rise.
