The Toothless Shark

Dear Clients and Friends,

My kids love Sharks.  They like stories about sharks, they like TV shows about sharks, and they like viewing sharks in aquariums.  Part of what makes sharks fascinating is their rows of sharp teeth, and the way they use those teeth to devour whatever is in their path.   Market corrections are essentially toothless sharks, they look intimidating, they swim fast, but they have no real power to devour the swimmer.  In fact, the only way a toothless shark can inflict damage is through panic, and that is exactly the way market corrections work.

Last month, the market moved from pessimism to panic and this resulted in a correction.  Within a market correction there are variables that seem to change rapidly, and the outcome of the market movement tends to be exaggerated by uncertainty.  Interest rates look like they are going higher, so people panic and begin to talk about runaway interest rates.  The political environment appears divided, so people panic and spew toxic political rhetoric. The trade war appears to be stalling, so people panic and describe worst case scenarios for trade.  What the market fears is uncertainty so it is no surprise that market participants react negatively to the unknown.

So, the toothless shark comes to mind in the midst of corrections.  If you are swimming in the ocean and feel helpless when the toothless shark arrives, remember that the toothless shark has no bite.  Many feel helpless in the midst of a correction; their money seems to evaporate on a daily basis.  But when you remember that the correction is temporary and ultimately the market will melt higher after the panic has passed, the market correction appears less threatening.  What about the uncertainty?  Well uncertainty is like a pendulum that swings back and forth.  When you reach the point of certainty you should understand that this will not last, and the same applies for uncertainty.

October has a history of being a volatile month, and this last month lived up to that hard-earned reputation.  What investors need to do is look at the correction as something like a test.  If you can swim with the toothless shark without losing sight of the goal, then you passed.  If you see the toothless shark and panic, then dialing back risk is appropriate.  The alternative to this scenario is to embrace the toothless shark and take advantage of whatever opportunity it creates.  Some of those who panic will leave behind valuable equipment as they flee, and therein lies the opportunity.  Eventually the shark disappears and the uncertainty dissipates.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information is not intended as a solicitation or an offer to buy or sell any security referred to herein.

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