Last month we used this valuable real estate to discuss the rapid decline of the stock market over a 30-day period, resulting in this decades first bear market. As reasonable investment professionals, we shared that we had ZERO idea if the stock market bottomed or was going to go even lower. What we did know is that stocks of some of the best companies in the world were suddenly on sale and unless the world was about to end, there were some great long-term investments to be made.
A month later and apparently the tune has changed… at least from the stock market perspective. The two charts to the right say it all. In fact, all you need to do is look at the direction of the lines.
In March, the two major indices (S&P 500 and Dow Jones 30) dropped between 16% - 18%. The low point on this chart was the nearly 35% drop from the Feb 19th high. Fast forward 30 days and abracadabra… these market indices are up between 16% - 18% for the month of April! And remember, this rally started on March 23rd, measuring 30%+ rise from that date.
Why the sudden reversal you ask? From our perspective, stocks got cheap, so investors ran in and bought them… and the bidding hasn’t stopped. Ask the pundits on TV and you will get explanations ranging from “Don’t fight the Fed” to “Too much money on the sidelines” to “It’s all about the FAANG stocks,” etc.
What’s even better than the pundits trying to explain why stocks have started to ascend is the subsequent prediction game… when will stocks crater (again)?!?! “There is no way stocks can go up that fast and stay there.” “The economy is in shambles; the stock market has to test the bottom.” The reasoning goes on and on to the point investors convince themselves of whatever they are arguing until of course, they are clearly wrong.
Stare at those two charts for a minute… can you even imagine formulating an
investment strategy based on those moves. My head hurts just looking at it. Yes, it is interesting to discuss the volatile stock market and it might even exercise your brain a bit, but having a real impact on your investment approach… I sure hope not. We can’t tell you where the market goes in the next month, quarter or even year… but we have a pretty good idea where it should be in five
As Warren Buffett puts it… in the short run the stock market is a voting machine; in the long run it is a weighing machine. I’m thinking the past two months are the short run he’s referring to. Congratulations to all of us… we just got a life’s lesson from the greatest investor of all-time. Let’s remember it!