American Consequences - November 2018

WHAT COULD POSSIBLY GO WRONG?

Financial follies and disaster in the making

market’s performance is based on logic and reason. Stocks move up or down based on quantitative data like fundamentals – how the actual companies behind them are doing –

Volatility shakes up the markets...

After months without so much as a 2% decline, volatility returned with a vengeance in October. Since then, we’ve seen the S&P 500, the Dow, and other markets seesaw into chaos while the media stokes fears of a looming bear market. Many folks – typically those who are new to investing – seem to believe that if they can just figure out what “caused” the market to fall on any given day, they’ll eventually be able to avoid market corrections altogether. And it’s not just investors... The mainstream media is more than happy to speculate, offering up unrelated reasons for nearly every turn in the market. Of course, these folks are almost always off the mark. Legendary value investor Ben Graham liked to say that in the long run, the market is a weighing machine ... But in the short run, it’s a voting machine . In other words, over long periods of time, the

and the relative value of other assets. But in the short run, the market’s

performance is based largely on emotion . This means there’s no way to know exactly how the market will react to the news on any given day. Worse, it’s often not even clear what news the market is reacting to in the first place. Occasionally, there may appear to be a single reason for the market’s moves. Sometimes, there’s no news at all. And you can often point to countless potential causes. The latter is certainly the case right now... The broader market averages are all lower today... There is no one defined reason why, but rather a number of things going on. Earnings in general weren’t great, Brexit negotiations continue to weigh on the UK and EU, and we’re still experiencing fallout from

12 November 2018

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