The Market Setbacks Create Value
Talk about a nasty little welcome to the ugliest earnings season in decades.
(Who took my TUMS?)
That said, the selling wave - clearly driven by a machine trade shaving down all the leaders of the last few weeks - was a welcome sign.
That’s right. This is a good thing.
You do NOT want to see markets (any markets) move straight up. You WANT to see chop and setbacks along the way.
And as a long-term investor you must accept this as important and ignore the “one day, one week, one month, one quarter, and one year” statements in favour of the much larger picture.
Remember, you are your index.
This is not about beating some XYZ Index or other. This is about your assets moving along the pathway defined in your plan over time.
The former is like a dog chasing its tail, the latter is about you creating wealth.
The Nervous Nelly News
Any financial channel you watch survives and generates interest and advertising revenue by ensuring you not only watch, but that you come back.
They need to hook you in.
And the best way to do that is by triggering your inner brain to generate the equivalent of an adrenaline buzz every time you watch, read, or listen.
They do it by creating disquiet, suggesting there is something to be afraid of, and that threat will worsen over time.
Last night’s Nervous Nelly News was no different. The chatter was all the anchors and analysts asking, "Was that the end of the tech move?"
Just take a look at the chart below.
That little red dot is what everyone is "worried about":
If you are investing in Tech - which the data suggest is a MUST for most investors over the next 5, 10, 15, and 20-year periods – it’s not about days, weeks, months or quarters.
And as much as headlines are designed to scare the crap out of you, long-term investors cannot get caught up in these short-term events.
The waves of technology and change coming our way have just begun.
Chop is good, folks.
Sprinkle in the trillions sitting in consumer bank accounts, socked away and providing little more than a feeling of security and you get a garden full of materials which create long-term bottoms, not tops.
A Few More Green Shoots
Ok, how much have we heard about the disaster facing retail and the death of the high street?
Then the pandemic arrives bringing worldwide shutdown, the death of footfall on high streets, stay at home orders, schools closed, stores closed and on and on and on…
Now ask yourself "How much will sales be down year-over-year?"
Here’s the latest data:
Did you guess a 5.5% year-over-year drop, or something more in the Armageddon-ish 40% to 80% range?
After all the disaster warnings the world is not ending, it’s just going through a very severe change - a tectonic shift combined with a natural disaster and a rebuilding process.
Remember: The harder the punch to the gut, the larger the rebuild improvements.
The "Value" P/E in Stocks?
- The 10-year is down to 0.60% yield at the time of writing, sending its P/E to a "lofty" 166.
- This is seeding even more cost reductions and margin improvements for all as the future unfolds.
And the two things that stuck out on JP Morgan's opening of the earnings season the other day was the massive profit from their trade desk, along with new deposits of $1.4 TRILLION.
Folks, that’s ONE bank, for one quarter, and whose customers were so darned afraid of the future of this country that they put $1.4 TRILLION in the bank during a quarter where markets fought back for over 50% of what they lost in the pandemic panic.
By the way, whose pocket do you think those huge profits from their trade desk came from?
The people watching and reacting to the headlines.