Originally published May 22, 2022
Is the market crashing? Should we sell? Is it the beginning of the end for all asset classes? The internet is bombarding everyone with this kind of noise and scaring investors into selling. It’s the internet and it’s noise, would you really expect a reasonable message? Like, don’t worry it’s normal? Never.
The Market is Down, What Should I Do?
Whenever there is a bigger move down I inevitably get a couple of people asking me “What should I do?”. As always, my answer is usually “nothing”. If you have money in the market, it’s because it’s a long-run investment (i.e. 5 years or more). Your average market-like return is based on good years and bad years so essentially you need to ride out the bad years along with the good years to achieve this goal. Market crashes, bear markets, bull markets, and high volatility are all normal events over time.
Maybe this time it’s different? Scarier? Usually not, but even if it is, the world does not end. The market has dealt with all kinds of scary things in the past and survived… World Wars 1 and 2, and now, 2 pandemics. Yes, there are a lot of weird things happening in the market as I have previously written about. Inflation, yield curves, earnings, interest rates, jobs, government stimulus, etc. Every week the market chews on one of these like a dog shredding its favourite toy.
There are also positive things that although boring, are quite powerful forces trying to push the market up. It’s a tug of war basically and sometimes the negative side takes the lead. Should you sell out of the market? Now you’re telling me that you can time the market based on how you feel. That rarely works out well for the small investor.
Do I know where the market is going in the short run? Nope, no one does. In the long run, I am pretty confident it will be up and that is all that matters.
A Discussion on Strategy
At the beginning of the year, I usually set an annual stock strategy which I tweak as necessary during the year. This year I called for overperformance of energy and financials, as well as underperformance of technology. I also underweighted USA vs world stocks. As much as that sounds like a radical set of moves, I try to always be measured in case I am wrong. So it’s not as if I sold off all my technology and bought oil stocks. I simply lowered my tech weighting a few points and increased energy and financial weightings a few points each.
If you recall, I normally want to beat the market but just by a few points on a regular basis. So I try not to deviate too far away from my benchmark in case I am wrong. So how did I do? I got the tech prediction dead on and energy dead on, financials are not quite there yet, and world markets have outperformed the USA economy by a few points. Overall pretty good. However, it’s a strange market that many pundits have called a “nowhere to hide market”. Even though I am getting most of the big picture right, I am only 3.5 points ahead of a moderately down market. My expectations were much higher.
To be fair, the ‘nowhere to hide’ market has devastated many small investors, as most have been building up some dodgy (low or zero earnings) but fashionable tech stocks that have for the most part been hammered. Even some decent tech names have really fallen. On a relative basis, peer-to-peer, I am doing well. Nevertheless, my approach has always been to measure against a benchmark and I will continue to make that comparison.
S&P 500 YTD Returns
Below find the sp500 sector returns year to date.
- Energy +45.8%
- Utilities -.5%
- Materials -9%
- Consumer staples -9.2%
- Health care. -9.2%
- Industrials. -14.5%
- Financials. -15.8%
- Real estate. -19.4%
- Technology -25,3%
- Communication -27.4%
- Consumer discretionary -30.7%
S&P500 -18.14%
Only energy is positive for the year and big. It’s a relatively small sector so even getting this one right has not made up for all the other negative players (nowhere to hide).
Looking Forward
I still think that there is a potential for a market rebound by year-end but I do see a continued reevaluation of stock prices as interest rates continue to rise. My earlier prediction of high volatility has played out and will likely continue for quite a while. In this environment, I think the small investor should keep an eye out for quality companies that get oversold as potential buy opportunities. Facebook which I just picked up might fit that approach at $180. Remember, buy low, sell high.
Happy investing.
Marc’s Monthly Moves
| Buy | Sell |
| Facebook (FB) | Vanguard FTSE ETF (VSS), some |
Marc’s Portfolio YTD Performance
- Portfolio return -13% (Including currency gains)
- Portfolio return -14.6% (without currency gains)
- S&P500 return -18.14%
- TSX -4.83%
The portfolio overperformed the S&P500 by 3.5%.
Money with Marc 