Some perspective on a volatile market…

With the U.S. stock market going through some increased volatility over the past few days, our CEO and Chief Investor Emmet Savage discusses how long-term investors should react.

Less than two months ago, the financial world celebrated the fact that the current bull market run had become the longest in history. Indeed, the past 9 years have been some of the best to be invested in U.S. equities, with the S&P 500 rising almost 250% and the Dow Jones Industrial Average rising close to 275%.

There’s an awful lot of detail hidden beneath the term ‘bull run’, however.

Let’s not forget the European debt crisis of 2009 or the downgrading of America’s credit rating in 2011, for example — two events that many believed would trigger the next crisis. What about the surprise election of Donald Trump (after which the market actually jumped despite the predictions of ‘experts’) or the momentous decision of the U.K. to leave the European Union in the same year?

Even in February of this year, the market fell more than 10% and officially entered correction territory because… well, can anyone even remember why?

The point of this is not to embark on some pessimistic trip down the near-misses of memory lane. Instead, I want to acknowledge that dozens of incidents of short-term volatility and unrest often get smoothed over in the long-term growth of the market.

Recent Volatility

Over the past few days, the U.S. market has somewhat soured. Yesterday was the first day since I started Rubicoin over 5 years ago that every stock in our portfolio was red. That’s over 100 stocks and ETFs all finishing the day negative. The ones that got hit the hardest were in the tech industry and Tiffany’s, surprisingly enough.

There are plenty of reasons that might explain this.

We could blame rising yield rates, which can often dampen the appeal of stocks as an investment. We could look to the tit-for-tat trade war that’s still being played out between the U.S. and China since before the summer. Maybe it’s just some investor jitters before the new earnings season kicks off.

It hurts to see the value of stocks in your portfolio fall, especially when it happens over the course of just a few days. In ‘Your Money and Your Brain’, Jason Zweig points to studies which show that losing money activates the part of our brain that responds to serious or even mortal physical danger.

However, as one of my colleagues pointed out, the overall market has fallen roughly to the point it was sitting at a little over a month ago — not exactly Black Monday territory just yet.

Nothing New

I had pretty much every penny I owned fully invested throughout two of the three biggest crashes of the last 100 years. It’s a mildly-panicking, hypnotic feeling watching your portfolio drop 2%, 3%, or 4% day after day after day for weeks on end.

The great thing about being long-term investors is that we get to accept these things and move on, though.

When you look at your portfolio of stocks, you should see a collection of companies that you truly believe will still be around in ten or twenty years time. The key to survival is having no borrowings in your portfolio (a.k.a. buying on margins) and not being at the end of your earning life where you have a reliance on that money now.

In fact, for some people, a downturn is actually a great thing, though they may not even realize it.

If you’re a long-term saver with plenty of liquidity, thousands of great companies just went on sale. If you’re a young investor with plenty of years of earning potential left, all those stocks you wish you could have bought over the past few months are suddenly available for you at a discount price.

And, of course, like everything in this world, context is key.

Looking at the stocks featured in the Invest app, Match Group ended the day down 9%. That’s a big one-day drop for anyone to stomach. However, Match is still up 106% from its 52-week low. Twilio ended the day down 8.5%, but is up 192% from its 52-week low. Teladoc: down 8.4% yesterday, but up over 132% from its lows. Netflix too lost 8.4%, but it’s still up 82% from its lows.

In the words of the inimitable Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful.”

Keep looking long-term!


Rubicoin operates a full disclosure policy. Rubicoin staff currently hold long positions in some of the companies mentioned in this article.