Friday, 15 July 2016 15:17
Tuning out the noise in 2016
The past year in the markets has been nothing short of tumultuous. After peaking in May 2015, the markets suffered two 10% corrections, only to shrug them off and rebound to all-time highs again this week. Since 2009, the public has been so conditioned by fear that every time the markets blink, individual investors go running to cash, where they remain in hiding far too long. The media doesn’t help, and being an election year, it’s not going to get better anytime soon. Prepare yourself. In order to drive voters to the polls, politicians and their media surrogates know they need to create a sense of urgency. The right will tell you that your life is terrible, the economy is terrible, and only an outsider can fix things. The left can’t use that narrative, because of how inextricably entrenched their candidate is in the establishment, so their storyline will likely be something more to the effect that we’re on the right track, and we need an experienced insider to keep us there. It will be interesting to watch how that goes over with the disenfranchised Bernie-ites who have been clamoring for, and promised, a revolution, only to have their prophet turn around and endorse the elite establishment he’s spent a lifetime at ideological odds with. At the end of the day, the markets don’t really care who wins in November. Don’t get me wrong, Wall Street certainly has a preference, and it’s probably not what you think. For all her rhetoric, Clinton is well understood by Wall Street, and any banal pandering to the far left is seen for what it is. What is known or expected is already priced into the markets. It is uncertainty that sends the markets reeling. Consider Brexit: markets popped the day of the vote, with the expectation that the vote would be to stay, only to give back those gains, and plenty more after the results were announced. Uncertainty and panic drove that market movement until a rational assessment could be made. The UK is the 5th largest economy in the world, it already has its own currency and denominates its debt in that currency. Theirs is not as much a divorce from the EU as simply an annulment. With Brexit, as with the election, Greece, Portugal, Ebola, H1N1, and any number of other times the Chicken Little media has worked a flinching public into a fearful froth, it was much ado about nothing on the downside, but a potentially significant opportunity to the upside for those disciplined investors who may have been sitting on cash. If there’s one challenge for individual investors, it’s trying to filter out the noise – and there’s plenty of noise – to differentiate the consequential from the trivial, and invest rationally and without emotion. Most investors think they are capable, but if that was the case, why are so many investors out of the markets, and have been since 2009? After all, is it rational to assure yourself of 2-3% losses each year in purchasing power, simply due to inflation, by hording cash? Is it rational to lose money safely? As professional investment advisors, we have the luxury of being emotionally removed from our clients’ investments, which means that what the individual investor sees as possibly apocalyptic (e.g. Brexit) we often can assess and view as a short-term blip and an opportunity to buy the market at a discount. Helping clients to put market movements in context helps them manage their emotional reactions and stick to a long-term investment strategy. Even do-it-yourselfers benefit from having the ear of an advisor to help them escape the DIY echo chamber. Turning toward the second half of the year, try to absorb information with skepticism and lean on your advisor whenever you need the news translated into “what does this mean for me”. Stephen Kyne is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinbeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.