Anyone hoping we might start Q2 more quietly than we ended Q1 on the volatility front has been rudely awakened to a dead elephant bounce.

Thousands of points have already been covered and we are only a few days into the quarter. 

But when remarks spring up like, "Wow, Mike the market sure is volatile...." I often find myself a bit confused. 

Markets are supposed to be volatile.  That bucking bronco design means the winners over the long haul just never let go of the rope.

That’s neither a fun nor easy ride in practice.

The human psyche is the very first thing that gets in our way, other than the glass in the window frame when we feel that urge to leap, when we face difficult (read: normal) issues in the marketplace along the way.

On your way to solid and beneficial compounding rates of return over time, you will need to accept, encounter and live through many mind-numbing, brain-searing, emotion flooding, gut-wrenching and seemingly never-ending bucking bronco rides.

It's part of the deal.

Those who’ve been sold the idea that there’s a route around this are April’s Fools in waiting.

What Gives?

The father of value investing, Benjamin Graham, said, “'In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Right now we’re watching the voting machine side of the market. 

Today it says, “Are you kidding me?  Doesn't that moron in the White House know that tariffs caused the Great Depression?” 

(They didn't. But when experts spray that garbage into the media airwaves with abandon it sure sounds smart, eh?)

That same voting machine has said in the past, "Holy Sh**, crude oil at $26 is the end of the world as we know it.  Everything will go bust.  Shale is gone.  Oil is gone.  Another credit crisis is here for sure - and no one will buy any gas because we will lose millions of jobs over this price collapse!" 

Everyone remember that?

And it was the same group of morons who told you, "Crude Oil at $148 a barrel is the end of the world" eight summers earlier.

The Point?

Voting machines stink.  The process has been proven unproductive for long-term investors over many decades.  

The bone-chilling effects are once again in place and the "value window" is opening for those who can take the more difficult steps.

Here’s the good news. 

The market has now sold off nicely into the beginning of earnings season.

More often than not, this sets the stage for a “surprising upside" in earnings. 

Given the coverage of the earnings story and the boost in the tax benefit and repatriation channels, I cannot see how anyone could be surprised.

But they will be. 

No Doubt

You know what volatility breeds? 

Doubt - the second weakest part of the human psyche.

As ugly and frustrating as these windows of chop seem a patient and disciplined view of the larger forces defining our collective future tends to be a more productive philosophy.

Over wide spans of time, people make markets.

You can ignore it or disagree, but the two largest generations of our time are set to drive U.S. economic growth for the next 40 years.

In time, innovative and well-run companies standing in that Barbell structure – where the Baby Boomers hand over the economic reins to Generation Y - will be set to generate long-term profits, and the shareholders (owners) who patiently invest for the long-term will hopefully participate in the value creation that takes place as a result.

As such, panics like the one the markets are currently (still) finding their way through tend to be good for the long-run. 

They reset values and perspectives and provide the long-term investor new opportunity to be patient and disciplined. 

No one ever stated it would be easy.

If it were easy, the returns available would be insignificant.

Mike Williams
Founder and Managing Partner of Genesis Asset Management, New York

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