Time to Sell Investments or Hoard Cash?
Hello folks! Thanks for visiting The Green Swan. Lately I have felt the urgency to explain why I do not plan on selling investments or hoarding cash. And instead, I will actually keep on investing as part of my normal course.
I can already hear it now…
“But it’s been a bull market for almost 8 years, Swan! It can’t keep going up forever. Haven’t you seen the news, we are destined for another crash and it could be bad. Yada yada…”
Since 2008, everyone and their mother have called for the next crash and forecasts for “the perfect storm”. Bank failures, the Eurozone, the Eurozone again, China, Brexit; anything and everything will result in the pending crash. Yes, these are compelling stories and highly-rated news programs feel the same. But highly-rated new programs don’t get that way by telling stories about blue skies and sunny days…except maybe in San Diego.
Well, for the sake of sounding Pollyannaish, let me present the flip-side.
The Old Bull
Yes, this bull is old. 88 months to be exact, but it isn’t the oldest bull in the pasture as many would think. It is actually just the fourth longest running bull market per records going back to 1854. But just because this has been a long running bull market, doesn’t mean it is the strongest running bull. Annual GDP is low relatively speaking, at around 2%, and the slowest growth of any expansion since WW2. Basically everyone agrees that this has been one of the weakest and slowest recoveries on record, which makes sense that it would last longer.
There are a number of reasons why an expansion can continue. I’m not an economist and neither do I want to pretend to be one. But I do follow a lot of economists weekly publications (more or less as part of my day job) and would like to think I’m fairly in touch. So let me lay out a few quick points I’ve picked up on, which could lead to brighter days coming. Oh, hi Pollyanna…
- Household and business debt ratios have improved significantly in recent years leaving room for growth in spending.
- The productivity growth in this economic recovery is at its lowest since WW2. Specifically, the improvement of each of us workers’ productivity level has been legging. What if we finally see the bounce we’ve been waiting for?
- Overall employment and specifically, employment of millennials has improved drastically in recent years. And we aren’t even at full employment yet. There is still room to gain and for our economy to grow with the increased employment.
- Real household incomes have recently seen a bounce up. Let’s hope it continues! And if it does, that could lead to increased purchasing power.
- The consumer confidence index is at its highest since the recession, and it still has room to grow from the highs achieved in the late ‘90s.
Not only has global growth been sub-par during this recovery, it has been unsynchronized around the world. But for the first time this recovery, it seems all major global economic policies are aligning (including Japan, China, Europe and the US) which improves the odds of a synchronized economic bounce being likely.
What do the Economists Think?
Like I said, I’m not an economist. So maybe we bring the economists in to see what they think…cue the Wall Street Journal (WSJ)!
On Friday, October 14, the WSJ published its latest survey of economists. The survey was conducted over from 10/7 – 10/11 and included 59 academic, business and financial economists. Some of the major findings:
- The odds of a downturn in the next four years is 60%.
Wait…only 60%!!! Your telling me the economists give only 60% odds that the almost 8 year bull market will continue for another 4 years! Wow
- The economists give a 20% chance of a recession within the next year.
So what’s all the fuss about. Only 20%…really?
- A quarter of the economists surveyed place odds below 50% there will be a recession in the next four years.
That’s 15 very smart and educated economists, people who do this for a living, and they don’t expect a recession in FOUR YEARS. Ok….we get it….a recession is not guaranteed in the next four years let alone the next year…so I’ll move on…
The Economy is not the Stock Market…
Of course we shouldn’t forget that an economic recession and the stock market are not one in the same. We can still experience a drop or correction in our stock and bond investments even if the economy keeps plugging along. But that would likely just be a temporary correction. Especially if in the longer term we continue to see economic growth, it should continue to support growth in the stock market.
What I hope this post has helped persuade you of is that nothing is certain when it comes to the economy and stock market. Not even among the experts. Yes equities may be overvalued by some standards such as the Price to Earnings Ratio (P/E Ratio), but if some of the economic indicators mentioned above continue to improve (which definitely is conceivable considering it hasn’t been all guns blazing the last 88 months) then this may right itself and lead to further growth in values.
Should you hoard cash or sell investments in case we see a correction soon? That’s up to you, your investment objectives and your risk tolerance. Since I’m a long term investor, and I know that time in the market is more important than timing the market, I’m not too concerned about a pending drop. I think trying to time the market is a fools errand and more often than not you end up missing continued growth which would more than offset the gains by timing the upswing after a correction.
So why bother trying to time the market, hoarding cash or actively selling investments for a “pending” correction? The only sure thing you stand to gain is an increased anxiety level, added worrying, grey hairs and/or balding…yikes!
So I will keep on keeping on, investing today just like I did yesterday and letting my investments continue their journey toward providing me financial independence. I’m a long term investor and my investing strategy / plan has always been riding the waves. Just like Pollyanna, I know brighter days are ahead…
Where do you stand on this? It certainly seems like a lot of attention has been given to a “pending” crash lately. What’s your investing strategy and do you plan on keeping with your plan? Let me know in the comments below.
Thanks for taking a look!
The Green Swan
Work Harder, Work Smarter, Retire Earlier and Find Your Beach
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