“Apparently, you actually have to have a little intelligence to know you’re stupid.” John Cleese

Recent economic statistics and changes in equity earnings expectations both imply deceleration. Things are slowing down and investors don’t like it. I am getting there but the market has been there before me.

I don’t see an economic catastrophe, but the market senses one and is moving to rapidly price it into equities. I still think that this is more like 1953 and 1984 (when stocks rapidly lost 15% to 20% in price as investors took minor moves in the economy and extrapolated them into a repeat of the agonies seen in the then recent past) than a true implosion or explosion in the making. Still, who am I to stand in the way of someone trying to protect their accumulated wealth? “No one ever went broke taking a profit,” to coin a phrase.

Things may very well get worse before they get better, but having cash on the sidelines, while wonderful in times like we’ve recently seen, should still be seen as something of an interruption or temporary event. If or when you sell, you should be looking for the time to step back in. Equities have been one of the best-performing assets over the long run, and I do not see why that changes now. Things may get very much worse before they get better (and cash can bring comfort and patience), but history indicates, to me, that stocks should be sold only to be bought back at a (hopefully) lower level.

To put this in context, I have included a table on some returns (price only) in the S&P 500 Index, over the past 66 years. It is a tale of over 16,600 trading days producing an annualized appreciation of almost 7.5% by merely buying the index and holding on (sometimes, for dear life!). It you ducked and weaved you may have increased your return and lowered your angst, but you had to be pretty good at it.

If you missed the 10 best trading days, your actual dollar return was cut in half. Miss the best 20 and it was reduced by two-thirds. Miss the best 120 and you made nothing in the period.

I am not attempting to beguile you from what may be quite justified fears and anticipations. There are real risks that have real consequences. This has been a market that rewarded those who have anticipated. I would only ask that you consider that anticipations can change and, in the past at least, those changes have come with a fury that matches our current situation.


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