Some thoughts on how to think about macroeconomic concerns and market volatility
The home page of the Journal’s website featured the following headline on Thursday afternoon:
“Growth Fears Hit Stocks After Apple (AAPL) Warning”
And this was the subheading on the article:
“CEO Cook’s letter is the latest sign to investors that ‘the slowdown is here and happening’”
Well, that’s encouraging! Now that we’re (apparently) in the midst of a slowdown, what’s a long-term investor to do? If the economy is in trouble, isn’t this the time to take action in our portfolios?
As I see it, there are a few problems with that approach to portfolio construction.
First, we’ve already started to take on water. As that Wall Street Journal article highlights, the S&P 500 has fallen 16% over the past three months (Apple is down 39% over the same period). A fair amount of damage has already been done. If your plan was to head for the exits ahead of the herd, you may have already missed your opportunity. (And if you didn’t foresee the pullback of the past few months, what makes you think you’re in a position to predict what will happen going forward?)
- Warning! GuruFocus has detected 3 Warning Signs with AAPL. Click here to check it out.
- AAPL 30-Year Financial Data
- The intrinsic value of AAPL
- Peter Lynch Chart of AAPL
Second, this isn’t the first time someone has called for impending doom for the economy or stock market over the past 10 years. Said differently, just because “the slowdown is here and happening” does not mean that its continuation is an assured thing. We could look back a year from now to find the problems of today were resolved or were already priced (that 16% decline I discussed).
It’s also worth remembering that the track record of the soothsayers is spotty at best. Consider this (far from complete) list of false positives from reputable publications like Barron’s and the Wall Street Journal:
“Is the End Near for Three-Year Old Bull Market?” – March 2012
“Mark Hulbert: Is Bull Market Near End of Its Life?” – October 2012
“Bull Market Winding Down. Don’t Panic” – January 2013
“Bull market in its Final Stage: Ed Yardeni” – July 2014
“4 Signs This Bull Market is on its Last Legs” – August 2014
“Is This Finally the End of the Bull Market?” – December 2014
“Bill Gross Just Called an End to the Bull Market, Again” – January 2015
“SocGen Calls for End of the Bull Market” – December 2015
“Are Stock Market Conditions Like 1999 Party Before the Crash?” – April 2016
“Barron’s Survey: Strategists Say Beware the Bear” – September 2016
“Is the 8-Year Bull Market Near its End?” – May 2017
“Bracing for the Aging Bull Market’s Last Hurrah” – August 2017
“Why a Weak Dollar Could End This Bull Market” – January 2018
“The Bull Market’s Days Are Numbered” – February 2018
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