Talking Points – December 2018

Dec 12, 2018 – Nearly Half of the S&P 500 is in a Bear Market

While the market itself, as measured by the S&P 500, is down about 10% from its high, nearly half of its holdings are down 20% or more. While it may seem arbitrary, most investors consider a decline of 20% to be a bear market.

Today’s chart shows us the other times since the Great Financial Crisis that the percent of stocks down 20% exceeded these levels.

Source: Strategas

So what do we take from this? Like many other indicators, when we look at this chart it tells us that stocks are in a range where they could finally find a real bottom; However, most of these indicators are shy of levels that would give us high conviction on a bottom call. Until more of those criteria are met, we will be patient and let the market prove itself before getting fully invested again.

Quote Philosophy: “The thing to do is to keep your mind when the world around you is losing theirs.” – Warren Buffett

It seems so many of our Quote Philosophy series comes from Mr. Buffett. We try to vary whose quotes we use, but Buffett has so many great ones we just cannot keep coming back to him.

We think this quote is particularly important right now considering the recent market volatility and any number of other things happening throughout the world affecting people’s mindset.

In his own unique way, he is referring to one of our favorite topics, behavioral psychology of investing, in a much more useful way than pulling a definition out of a textbook.

Mr. Buffett possess the rare mind that allows him to keep his emotions in check when events become volatile. For everyone else, it is critical to have a disciplined investment philosophy and process in place ahead of time.

It is easy to think that when times are good you will be one of the few that can handle market volatility when it comes. The reality for most is much different.

At Lakeview, we follow a rules-based investment process which includes a risk management discipline. That certainly does not mean our portfolios won’t experience some volatility, but it does take a big step towards not losing our minds when the world around us is losing theirs.

Source: Greg Towner, CFA, CMT