When it comes to big swings in the stock market, two things are primarily driving them: fear or greed (and I mean greed in a nice way).
As we saw last week when the UK voted to leave the European Union, which was a shock to almost all that were following this story, the uncertainty of the ramifications of this vote caused global stock markets to drop (fear).
Here in the U.S. we saw significant drops two days in a row followed by significant gains for the next three trading days which brought us almost back to where we were before this vote.
I spent a great amount of time listening to the “experts” talk about these downward and upward movements and, from what I heard, most of those that were predicting the future were wrong on both sides of the equation.
This is why, after all the years I’ve been managing portfolios for clients, I don’t get too concerned when I see a big drop (always based in fear). I know, that at some point, it is a buying opportunity for those that want to make some money, either for themselves or their clients.
And if you hadn’t been watching the news or reading the paper in the last week you wouldn’t know anything happened at all in the markets.
No matter what you hear or read, no one knows with any certainty what the stock markets are going to do in the short term. Yes, we all speculated after the UK vote turned out the way it did that there would most likely be a drop in the stock market, but no one knew how big of a drop or when it would recover.
And the “when it would recover” is the tricky part. The market can move up very quickly and if you miss those upswings because you bought into the fear and sold out of the market that can have a devastating effect on your portfolio.
For long term investors, it is always best to stay invested throughout these ups and downs as long as you are appropriately diversified and invested for your risk tolerance.
We can’t control the markets, but we can control our own behavior.
My clients know this. I didn’t have one phone call or email throughout this turmoil. They know they just need to sit tight.
And now, so do you.