HIGHLIGHTS: Tuesday, 26 January 2016
Sell and protect, or does the sell lock in the loss? Most investors are beginning to wonder when will the correction end? Should they sell now and protect assets or contin-ue on? History is a great education tool, but you are not hearing much about history in current market analysis. It seems all-day breakfast at McDonald’s is more news-worthy than what has happened in previous corrections. Here is what we can gain from history. We can go back to the 1900’s and the story is the same, but let’s stick to more recent times most of us remember. In 1987 the market corrected 34.4% down. Even if you had invested at the peak in July 1987 you would be up 345.7% today. Moving on to 2001 (dot com) the market dropped 29.4%.
If you had invested at the peak in June, you would be up 41.3% today. Moving on to 2007 the market corrected downward 52.7%, which fell below the 2001 market levels, you would be up by 13% today. The current market is down 11.2%. Investors can sell now and either lock in the loss from the earlier peak or maybe lock in the gain from earlier periods but, history seems to say that you will also lock out the opportunity to gain from future economic growth and resulting investment gains. (Keep in mind you also collected a dividend of about 2% during the entire time period.) It is not comfortable watching the market fall for what appears to be a guess by “experts”. In 1972 “experts” claimed world growth would be severely constrained due to a lack of oil. Why does an abundant supply and low price cause a market downturn now? Maybe it is only temporary?