Wednesday, October 1, 2014

Why I Really Like Down Days, again...

On July 31st I wrote you a letter titled "Why I Really Like Down Days. Seriously!" Thinking I should come at you once again today (you got my audio this morning), I recalled that July article. Other than the last paragraph, the message of that article would be the message for today. So here it is again, with the last paragraph updated:

Why, as an adviser, I really like down days:

For one, they always confirm that rebalancing is a good thing: With few exceptions, after each client review meeting for quite some time now we’ve been reducing exposure to the stock market. Not at all in a market-timing effort, but in remaining consistent with each client’s objectives and tolerance for volatility. Plus, we generally have a steady flow of new cash coming into the practice (recent retirees, heirs, property sales, systematic contributions, etc.). I always feel better buying on the down drafts, as opposed to buying when stock prices are on the rise.

So, today’s a good day. If tomorrow sees follow-through selling, even better. If this is the beginning of that lately elusive 10%+ correction, perfect! There’s no time like the present for the market to take a much-needed, and inevitable, rest.

If this one indeed morphs into that meaningful correction, or an all-out bear market, then we look forward to buying more at cheaper prices when those rebalancing dates come around.

In terms of what today’s all about: Well, there are a number of headlines to consider, but I’m thinking the jump in today’s reading on the Employment Cost Index has (per my recent commentary) traders a bit nervous. Although the bond market, while off a titch, isn’t freaking out on that news (perhaps bond traders are focused on the geopolitical)… ?? but I'm thinking today's more about stubborn buyers than it is panicky sellers. Meaning, with tomorrow's ECB interest rate decision (traders are looking for signs that European QE [money printing] may be on its way [traders would love that, but so far it hasn't materialized]), with Hong Kong's unrest, with Ukraine maybe heating back up, with the Middle East turmoil, and with the U.S. jobs number on Friday, why not test the sellers a bit and see how low they'll go. 

I’ll keep you posted…

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