Thank goodness the markets corrected last week.
The thing can’t just go up and up… and up. The return of volatility is the return to normal. We embrace volatility as the normal operation of healthy markets.
In our January client letter we referred to the experience of the market in 2017 (positive every single month with a maximum 3% drawdown) as dessert and said, unequivocally, that dessert was delicious, but it was over.
Just last week at our annual “Forecasts” client event we talked about the “Return of the Business Cycle.” As money is pulled out of the system (as the FED normalizes) we should expect people to become more selective of the assets they own. This “selectivity” means they will buy and sell more. This means we should expect greater volatility.
Yup, Yup… it goes down. But remember – neither the short term up nor the short term down is ever predictable.
This is why we have a process.
It’s why we have cash on the sidelines.
It’s why we are ALWAYS diversified across equities.
It’s why we rebalance regularly.
We don’t predict (because we can’t). We trust the process and we employ the process through market cycles.
This isn’t only how we succeed; it’s how we stay sane.