A Sell-Off Tougher Than “Fire and Fury”
August 11, 2017
Yesterday, President Trump indicated that his “fire and fury” comment toward North Korea wasn’t tough enough, and that perhaps a new phrase is needed to make Kim Jong-un understand how dangerously he’s pushing his country to the carnage. Those comments spooked a market already on the run, resulting in all the major indices closing at the low of the session.
Even if President Trump hadn’t weighed in, there was a greater-than-average chance of accelerated selling into the close. The major indices are up fractionally this morning, but the big chunks that were given up yesterday generated a sense of panic. The “sell first, ask questions later” mentality has devastating consequences beyond the price discovery and making market bottoms tough to decipher. So while tensions and the war of words between North Korea and the U.S. sparked this week’s selling, I suspect a lot of investors have actually been eyeing the exits for some time now – especially in those hot stocks that have been leaders in 2017.
I’m bringing all of this up today because there is a hugely important point to remember: This is the kind of situation in which bargains are created – just not before investor resolve is tested. That’s what we need to watch.
The major indices are at key support points on the downside, so a stand today and next week would be huge. We’re taking things minute by minute and understanding that the goal is wealth appreciation over a much longer period of time.
I know the headlines blame the sell-off on President Trump’s tough talk, but I find comfort in such leadership. This is a market that’s wanted and needed to blow off steam for some time now. They key is to remember that the fundamentals haven’t changed. The essence of investing is looking beyond the headlines and taking advantage of opportunities. Therefore, here’s what we want to do:
- Have cash to lower your portfolio’s volatility and to pounce on opportunities
- Be ready to accept a loss if we need to
- Be willing to hold on to paper losses in great companies still positioned to move higher over time as any selling subsides
I’ve seen this sort of action many times in my investing career, including in my first years as a broker when I thought my career was over with the crash of 1987. However, I soon learned that days like these were actually gifts. Yes, they can be grueling. But it’s important to stay positive and understand that the fundamentals of the economy are the real story. And from what I’m currently seeing, it’s a very good story indeed.