"They Go Up and Down"

In the year 1864 then brand new words like bacteria, cookie cutter, deadline, firing squad, and useful idiot, were introduced to the English language according to Miriam Webster’s “Time Traveler” website.  Alas, another phrase made its debut in that year that often best describes me; “Smart Aleck.”

According to G.L. Cohen, author of Studies in Slang Part 1 (1985), the phrase smart alec(k) arose from the exploits of one Alec Hoag. A celebrated pimp, thief, and confidence man operating out of New York City in the 1840’s, Mr. Hoag, along with his wife Melinda and an accomplice known as “French Jack,” operated a con called the “panel game,” a method by which, prostitutes and their pimps robbed foolish customers. See www.wordwizard.com/.

I will testify that I’m not a pimp, thief, or confidence man but, often, I’m guilty as charged of being a smart aleck. I like to show people that I’m smart and also that I’m funny, a combination that often has gotten me into trouble and, sadly, age has only emboldened me to be more of a… well, a smart aleck (not always the exact term used to describe me, aleck is often replaced by a different term.) But in describing my market outlook for this year I’ve found myself using a phrase that might be misconstrued as: cute, facetious, flippant, smart… you get the idea.

Nonetheless: the theme for the Markets in 2022 is this, “They Go Up and Down.” For the last several years, we’ve watched financial markets move ever higher with almost no meaningful or long-lasting pullbacks. Our corrections, like our recessions, seem to be over almost before we realize they’ve begun, markets have moved relentlessly in our favor no matter the election cycle, the public health, or international calamities. It’s been a fun time to be an investor, if not somewhat abnormal.

This year (2022) if a client calls me about a bad stretch in the market (theoretically) I will remind them, “They go up and down,” and for once I’m not trying to be glib. I’m saying that yes, indeed, markets can go down as well as up. And then I will remind them that we are often rewarded to endure a certain amount of volatility: that’s why there can be great rewards to investors! We take a long-term view of the markets and believe that over time the value we perceive in buying a stock will be recognized by the markets in terms of higher share prices. In the short term, anything can pretty much happen and the stock market can be erratic. As investors, if we buy at what we consider a fair price, we should be willing to not only endure a little volatility, but perhaps even add to our holdings when prices are down. (That's why we are very disciplined about making new investments, we really want to buy things at a good price). 

In 2022 there are several factors that bear watching for those of us who must bear watching: Higher interest rates are a game changer, the mid-term elections are usually not good for stocks, and we are in the third year of a global pandemic which no one seems to have answers to. In general, markets don’t like uncertainty and we are in line for no small amount of it in the coming year. A properly designed portfolio should be able to weather such storms.

It’s my job, as an investment fiduciary advisor, to try to separate short-term uncertainties from long-term secular changes and to attempt to navigate through or around event driven storms. Most importantly, I believe that my job is to segregate my clients’ short-term money from money that can be invested for the long haul. It’s easier to live through volatile markets if you have a long-term time horizon and miserable if you need stock market performance to meet your next mortgage payment.

As described in my book The Retirement Dilemma, we like to keep up to 5 years of expected cash flow needs in traditionally safe investments so that the daily market gyrations allow us to live our normal lives without worrying about stock markets that have gone temporarily insane. There are both buyers and sellers in any given trade, that’s why the system works, and we find it easier to be investors when we invest with conviction, that we pick our portfolio with a long-term time horizon while we let the market timers and traders do their thing. We hope to make our money by taking a longer-term view while looking for opportunity along the way to profit from the short sightedness of short-term investors.

There will be a lot of discussion this year about the markets and what happens if interest rates go up more than currently expected, or if there is a turn in power in the November elections, or if the next variant of Covid is the one that kills us all… Or a million other things that could happen over the coming year- just like every year- As investors, we want to be positioned to invest for the long run and retain the flexibility to adjust to new threats or opportunities, that’s what makes my job so fascinating. As a 36 year veteran of the financial services industry I can tell you that the people that I consider successful investors are patient and willing to wait for their portfolio to grow, time is their biggest ally. So as we endure volatility in 2022 let's keep in mind that investments we make this year may not be ready to be harvested for several years, we are growing an orchard here, not a garden full of annuals and as a smart aleck, I respectfully ask you to keep the markets in perspective and have faith in investing for the long run because they do go up and down!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

All investing involves risk including loss of principal. No strategy assures success or protects against loss.