Mr. Market

“More money is lost anticipating a market correction than in the corrections themselves” is a quote from Peter Lynch, the famous money manager of the Fidelity Magellan fund.

And the only money lost in a correction (assuming a portfolio is truly diversified) in the U.S. stock market has happened when investors sold after the market was down. For investors with diversified portfolios, the markets have always come back to make new highs as the economy and profits grow.

This does not make the first half of 2022 fun, but it should be a reminder of the perils of selling when we feel scared. It may sound cold, but the markets don’t care how we feel. But if you and I are feeling discouraged in our outlook, we can certainly assume that many other investors are dealing with the same emotions. And markets reflect all investors feelings about the future. Sometimes we are happy and optimistic and that is usually reflected in higher stock prices. Sometimes we are pessimistic and fearful of the future, and that is usually reflected in lower stock prices.

Warren Buffet wrote in his 1987 letter to Berkshire shareholders the story of Mr. Market. He said imagine stock market prices are coming from a fellow named Mr. Market who is your partner in a private business. Every day he shows up offering you a price to buy you out or sell his interest to you. While the business you own is stable, he is anything but stable due to his incurable emotional problems. Sometimes he is in a great mood and names a high price for you two to buy each other out, and sometimes he is extremely depressed and sees nothing but trouble and is willing to sell his interest at a very low price.

One nice characteristic of Mr. Market is that he doesn’t get offended when you ignore him. He will be back the next day and the next, always offering varying prices depending on his mood.

The obvious message of Mr. Buffet’s example is to let the market serve us and not let the extremely contagious emotions of the markets control our emotions.

Realizing there are periods when we as investors are optimistic as well as fearful, which of those two periods would we most likely find attractive values in stocks? The obvious answer is when investors (in other words us) have negative views about the future, but that is also the time when many investors say, “get me out, I will come back when things look better”.

Where do stock values tend to be when “things look better”? Yep, they will likely be higher, reflecting investors (us) being more positive about the future.

I wish there was an easier way to invest, but we haven’t found it yet. And to our knowledge, neither has anyone else.

So we will stay invested and diversified and not taking any more risk than is needed to achieve our goals.

Thank you as always for allowing us to manage your investment strategy during the difficult markets like we have had in 2022. We are very fortunate to have you as our clients.


Disclosure: The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Beach Foster and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Holding stocks for the long-term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.