January 30, 2018 – Big Sell Off in the Markets

January 30, 2018 – Big Sell Off in the Markets

The Major Stock Markets chose the day of Donald Trump’s first State of the Union address to hold a massive sell off.  Well, I guess not too “massive.”  I was around for Black Monday (20% drop in 1987) – I was 14, but I was a bit of a nerd, so, I remember.  I also lived through 2008/2009.  Man, those were some massive sell-offs.  So, maybe it is best to just call this one what it is: a pause.  The markets in the US have had a great run over the past year, up over 20%.   Canadian markets have perked up a bit as well.  A little pause was a bit overdue.  Personally, I go to bed each night hoping for a sustained  drop in the equity markets.  Some panic, or some fear, overdone, which would cause a solid 20-30% drop in the markets.  Heck, I’d even live with 10%.  Panic, fear, herd-mentality…this is where there is opportunity.  I love Boeing, but I am not buying it at 30x earnings.

Yet, the economy in the US and the economy in Canada, are doing fine.  As well, globally, the major economies are doing well.  Earnings are good, and should continue to get better.  Stock market valuations are soaring and that usually becomes a beacon for investors to invest more, in the hopes of gaining above-average returns.   I’ve seen it before (remember, I am a bit of a nerd…).  Coming out of the recession in the 90s (that was a really bad recession – deeper and longer than 2008), markets similarly performed really well from 1994-2000.  I would expect the same.  There were some drops during various crises of the day (Mexico in 1994 and Asia in 1998) and those were good buying opportunities.

Do you know what the biggest risk in these markets is?  It’s over-confidence.  As we get later in the cycle, people get lulled into complacency by regularly increasing earnings and a stable/growing economy.  They end up investing in businesses with too little reward for risks they perceive as low.  Trust me though, there is nothing risk-free in the market, and, if you are going to invest your hard-earned money you need to get a very good return.  10% is not enough.

I will continue to look for cheap stuff to buy…but the picking are slim.  And so, we wait.