Big market move - a comment

March 06, 2018 | Sam McLaughlin


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A significant drop such as the US markets suffered highlights a point I have been trying to drive home of late—the need to take a close look at a more global portfolio.

Yesterday the Dow Jones Industrial Average fell a whopping 1175.21 points. As I drove home, it was all the news on every channel—the largest negative point change in the Dow in history. What not a single news source reported—from Fox to MSNBC and everyone in between—was that 1175 points represented only a 4.6% drop. A fall that big is nothing to be sneezed at, to be sure, and it wouldn’t surprise me if the pain continued through this week to varying degrees. 4.6% is, however, only the 102nd highest single day drop in the Dow in history. The S&P 500 index (a hugely better index, but that’s another rant) dropped 113 points (4.1%), also a record on points and nowhere close in percentage. Combined with Friday’s losses, this is about the amount that the index moved up so far in 2018. There is probably more to come (and, if you read back to previous missives, entirely expected). The business cycle is still very strong. We have been taking profits off the table since late last year on the expectation that at some point a pullback was inevitable and something like this would open the opportunity to buy good companies with strong earnings on sale.

 

A significant drop such as the US markets suffered highlights another point I have been trying to drive home of late—the need to take a close look at a more global portfolio. It has been easy for complacent advisors to celebrate the strong returns in the US and forget about the rest of the world. It wouldn’t be atypical to see a portfolio these days that is 50% or more US stocks, with 0% international exposure. But as celebrated as the US markets have been, the drop in the US dollar has hurt those investors’ returns in a Canadian dollar portfolio to the tune of -9% since the USD peak last May. Returns in a Euro-based portfolio would have had a +4% tailwind over the same period.

 

All that to say that stock markets go up and down. On days like yesterday, people like me find themselves pathologically compelled to comment on the very short term and to prognosticate the next week rather than the next year. But it is essential to ignore the noise (mine included) and to concentrate instead on your own long-term. Pay attention to your 5-year return and not your one-day return; your portfolio will thank you for it. If you have any concerns at all, please feel free to reach out—that’s what I’m here for.

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