There's an old Mark Twain joke about October being a dangerous month to be in the stockmarket along with every other month.
Yet, let's be honest here. If you want to witness a good old-fashioned crash, October is the month for you.
October 2008. October 1987. October 1929.
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I mean, surely that's why Americans call autumn "the fall"...
At times like these, you need to know what kind of investor you are
Markets were down a lot yesterday and they've fallen again this morning.
I'm not going to go into deep detail on the specifics of yesterday (although Donald Trump saying that the Federal Reserve was "going loco" and raising rates too fast was a highlight, I have to say). Markets are struggling because bond rates have gone up, and I explained why that was a problem particularly for tech stocks earlier this week.
So now investors are putting two and two together and deciding that it equals "run for cover fast".
Now if you've read Money Morning for a while, you'll know that I'm naturally conservative bearish, some might even argue. I often tell you to be careful out there.
Yet at the same time, I think it's fair to say that every time we've had a wobble over the last few years, I've suggested that you keep the head and see it as a buying opportunity.
So, what about this wobble? Is it time to break out the watchlist again?
I'll come back to that question in a moment. There's a more important point for you to think about, which is: are you a market timer? Or are you a buy and holder?
This is not a trick question. I'm not favouring one over the other. My point is that it's very easy to make mistakes when you are faced with falling markets. And this is where it's very important to remember what type of investor you are.
Timing the market is very hard. You need to have a plan about getting out, and a plan about getting back in. And even if your plan is a good logical one, you might not have the psychological strength to stick to it. And even if you do, you might fail to beat the market because maybe your strategy just didn't work in this market cycle.
So it's not easy to time the market, even with a plan. And if you don't already have a plan, then you're a buy and hold investor, whether you knew it or not. And that means that you should stick to saving regularly and try not to worry too much about what the market is doing.
Take a big picture view of what you want to invest in, update it once or twice a year, and save regularly. And importantly, accept that this is what you plan to do and automate it as much as possible. That way you won't get distracted by scary headlines and triple-digit drops in the market.
There are many roads to ruin in the markets some of them longer than others but one surefire way is to set out as a buy-and-hold investor and then attempt to turn into a market timer during a bout of market panic. This will do more damage to your portfolio than following one approach or the other.
So is this the big one or not?
As for the answer to my earlier question, here goes.
The fundamental story driving this bull run has been that nothing matters, because central banks can solve any problem by printing money. You could call it the "whatever it takes" bubble. For this bubble to pop, that faith in central bankers has to be extinguished.
My theory has been that the most obvious pin for this bubble is inflation. Deflation is an easy challenge for central bankers just run the printing presses as hard as you can. Inflation is trickier you can't solve inflation by printing money. At the end of the day you have to chose between tighter monetary policy now, or a more chaotic denouement later.
I still think that's the case. But there are other potential pins. One is that markets simply lose faith in the idea that central bankers are still willing to do "whatever it takes."
Investors have decided that if the "Powell put" exists, it exists at a far lower level than the "Greenspan/Bernanke/Yellen put" ever did. If Powell doesn't show signs of wavering once the market drops by a certain amount, then investors will get really jittery.
Meanwhile, Mario Draghi steps down as European Central Bank boss next year, just as Italy is finally asserting its sovereignty. Markets would be unusually short-sighted not to start worrying about that within the next few months.
And then there's China. China could deliver quite a surprise to the global economy by devaluing or even free-floating the yuan in the relatively near future. This is a thesis put forward by one of MoneyWeek's favourite analysts, Russell Napier. It's a complex one and I'll go through it another day, but suffice to say, it'd be disruptive, to put it lightly.
So what's my bottom line? My gut feeling is that this bull market has another bout of mania left in it (maybe after the mid-term elections are done a bit of a Santa rally, possibly fuelled buy a more circumspect Fed).
A neat, beautiful ending to this bull market would be a Jeremy Grantham-style melt-up (Grantham has rarely been wrong on his big calls) with a strikingly outlandish deal timed to mark the top of the market almost to the day.
However, I also have a gut feeling that we're a lot closer to the end now. I now feel that it's probably a good time for active investors to be looking at building up reserves of cash to take advantage of a bigger fall than the ones we've seen.
In other words, I reckon the time for buy the dip (or "BTFD" as you'll often see it described in the laughably macho language of day-traders) is over. Of course you should still be looking out for assets that you want to buy but I think you can start to get a bit tougher on the price at which you want to buy them.
I also think that the assets that will be favoured will change. This may be the point at which value finally makes its comeback versus growth.
But don't forget that's my gut feeling take and it's aimed at people who want to take the risk of timing the market. Would I have said the same thing in 1996? I don't know I was 21 and couldn't have cared less about the stockmarket. But it's quite possible.
If you're a passive investor, then stick to your process. A market crash is not the time to start coming up with a plan for how to deal with a market crash. If you don't have any plan for getting back in, then you shouldn't be thinking about getting out. Far better to stick with your monthly or quarterly savings plan, all through any crash.
You buy at the top, but you also buy at the bottom and in our lifetimes at least, that has certainly paid off better than failing to buy at all.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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