Stock markets around the world showed effects Monday of several waves of potentially negative news over the weekend. New proposed tariffs to be levied by the US on Chinese goods, the Chinese government's decision to allow their currency to devalue relative to the US Dollar and last week's recent 0.25% rate cut by the Federal Reserve all seem to put investors in a tense mood. In addition, all of that news was against a backdrop of
the sad events out of El Paso, TX and Dayton, OH.
Part of being a wise investor means seeing through the headlines (which will usually pull towards sensationalism at best and hyperbolic at worst) and maintaining a rational perspective while in pursuit of your goals. What we call "the market" is not a single unit nor do all companies within the the market move as one. What we observe in the daily price changes of the individual company stocks that make up broad market movements is nothing more than buyers and
sellers working to reach a fair price to transact that day based on the most recent information available. The fair transaction price (meaning whatever price buyers are willing to pay and sellers are willing to accept) changes daily and the prudent investor remains focused on the long term expected return rather than these short term price movements.
I've included a link to an October 2018 article below from Jim Parker at Dimensional Australia for some additional perspective. You'll recall October of last year was the beginning of some broader downward market movements that have been largely erased by now for investors who remained diversified. It's a helpful reminder that, even on days like yesterday, there has to be a willing, optimistic buyer on the other side of the trade from every pessimistic seller for any trade to take place. In
other words, not everyone can be pessimistic about future prospects for stocks at the same time.
Personally, I remain squarely in the optimist camp. My phone, email and office are always open to discuss the many reasons why. It's also a good time to revisit your plan, discuss your risk tolerance and be reminded why my team structures a diversified portfolio the way we do (hint: it's exactly for times like this). I'm also available to discuss your concerns and address any other questions you have.