The markets closed out month 1 of 2016 in a race to soak up some of the red ink spilled throughout the month. A good deal looked like short covering as volume was not as high as one might like to see – and the best performers were the ones which had been clocked all month long.

Be that as it may, that focus is too close. Even as the churn is gut-wrenching at times, we need to learn the lesson at hand.

Though it feels like the valley of death, it has been historically more productive to view it as a planting season. Planting assets, seeds if you will, which can be left to grow over time – often a long time.

Look back in time for as far as you would like and you will find that all periods like this are lower than the next highs reached – even the worst of periods.

Think About It…

October 19, 1987 – worst day in our lifetimes right? The DOW lost 22% in 6 hours, for reasons the masses still cannot agree upon. So is it useful to remember that 22% down issue – or the fact that the DOW ended that day at 1,722 – and today is nearly 10 times higher?

Which is the better viewpoint?

Likewise, the Great Depression crushed the country, businesses and many. many lives. Massive numbers never really got over it – but if they had, would it have been productive to realize the DOW was two digits in length at its depths?

Another example – the early 90’s. We had massive real estate losses – commercial types then – as city after city was overloaded with office buildings. The Fed closed thousands of banks and S&L’s. The RTC was created to clean up the mess and liquidate the assets in trouble.

The DOW then stood at about 15% of its current levels – even as we deal with the current ugly process.

History Repeats?

One could find any number of arguments about whether things repeat in our economic cycles – or in markets for that matter. I think that is another possibly incorrect focus.

The better focus is this:

Markets are people – and people have acted basically the same since time began.

Our emotions – our fight or flight syndrome is sewn deeply into our DNA. It is what kept our ancestors alive at times…or else they were eaten.

We must eventually find our ability to separate emotional issues from real economic issues. In the end, a proper financial plan – as simple as it sounds – will erase a good portion of the reason for fear in the first place. Why?

Almost every time I speak with someone who is reacting with fear – and a good deal of it – I find that their assets are at risk in areas where they likely should not be.

Have goals that are required to be met in 6 months to 2 years? If so, that capital is managed in an entirely different manner than a goal or need 10, 15, or 20 years down the road.

Let Me Summarize..(and then a chart or two at the end)

Before I type this in – be assured it is a downer:

The very best way to build wealth over time in the markets is: slowly.

I know, that sucks – but alas, it is that reality which makes times like we are living through right now even more antsy for too many investors…large and small.

Times when we see “nothing happening” or we cover long periods where “we are going nowhere” tend to be misunderstood. I have called them lunch stops before. They are periods of rest. Too many mistake them as periods of falling behind.

History tells us that right when we are sure we should change everything, the markets start surprising the crowd again – catching up to where they left off eventually.

Over time it is obvious – living through the time it is not.

Living the times like this is where the errors begin:

  • Impatience leads to selling when it is frustrating
  • Greed leads to buying only when it feels better
  • We tend to think too short-term
  • We tend to swing for the fences to “catch up”
  • Instead of staying focused on boring singles
  • We tend to think about day-trading, hot tips..
  • Or something we hear on a 12-second soundbite

In the end, our errors are found when we do all the stuff except the hard part:

Letting the time go by – understanding that wealth is built slowly – even allowing for the ugly parts.

Now A Couple Charts:

This first one above is from our good friend from Scotland – top advisors in the country – Alan Steel. Says all we need to say in one photo yes?




The next three charts above are from our friends at Calafia and they provide some helpful thoughts on just how “terrible it is out there”:

At the top, our real GDP trend over time – showing we have about a $2.8 trillion gap against the trend from the 60’s. This is not about the country or our economy – it is all about fear:

We have hoarded nearly $8 trillion dollars into bank accounts because we are petrified of the future. If a mere quarter of that asset level was flushed into the system and allowed to “circulate”, build and expand our base, we would quickly see this gap erased.

In addition, we can thank the headwinds of a government too large and into too many things, taxes which are too high and regulatory burdens that have become almost comical – all designed to “help us.”

The next chart down shows you that credit card debt is back to levels seen in 2004 when our GDP and income levels were massively lower.

Lastly, one can see that building permits are rising and are nearly in the middle of the long-time average.

This tells you we have still not seen the massive influx we will begin to experience when the Gen Y wave of kids flushes out of their parents’ homes. It has just begun to seep into the system.

The Bottom Line

Years from now we will look back on all the fears we were induced to carry for 2015 and 2016.

We will laugh at ourselves for fearing cheap oil.

We will chuckle that we thought $2 gas was bad.

We will regret the cheap prices seen at the time for good companies to benefit long-term investors…building wealth slowly.