Written by Emily Scott, Advisor | Client Service at Anthem Advisors
The textbook definition of a recession is two consecutive quarters of negative GDP. When the numbers were released at the end of July, we started hearing controversy about the definition of recession and how leaders in the economy were hesitant to use that title. This is mainly due to a unique position where the leading factors for a recession are challenged by the booming housing market and the solid job market. Leading us to wonder if a new definition of recession will be released.
Some of the loudest voices today are focusing on the negatives in the economy. In a ripple effect, investors then pull out of the market due to rising fear of this year’s returns in both the stock and bond market. With high prices in the grocery stores and high gas prices peppered in, fear continues to brew. Unfortunately, this fear and other emotional aspects often lead the average investors to poor choices. Once an investor becomes emotional, trouble has begun.
Generations of parents have warned us about peer pressure. “If your friend jumped off a bridge, would you jump too?” Or, “Would you do XYZ just because everyone else is doing it?” As we mature into adulthood, and every season past that point, we continue to challenge ourselves with that same thought. If everyone else is jumping out of the market, then should I jump too?
The Market from a Macro Viewpoint
Let’s talk about the market from a very basic and macro viewpoint. The purpose of investing is to buy equity in a company with the hopes that over time, the company will pay us back due to our investment in that company and how the company grows. In a simple supply and demand mentality, if everyone is selling off their shares, then the value of the company seemingly goes down based on the stock market price.
However, like all things, the value of something is dependent on what someone will pay for it or how it is viewed. If I bought the latest gaming equipment from a store when it came out, then it would be worth that sticker price to me. But, if my friend bought it during a Black Friday sale at half off, how does the value of the item compare?
While there are certainly many more factors in valuation and technical analysis that go into the stock market and the costs of holdings, these are some thoughts to keep in mind. Would I be scared to buy something when it’s on sale? If something goes on sale that I bought at a higher price, would I just turn around and sell it back at a lower price? The answers will vary by person, but the encouragement here is to remember that this market season is an opportunity.
Warren Buffett is quoted to share that investors should be “fearful when others are greedy, and greedy when others are fearful.” Meaning that in this season of fear, investors should look at the opportunity. This also encourages investors to remain invested even in seasons of bear markets and recession fears.
How can Anthem help me with this “What If…”?
First, let us show you the research behind some of these behavioral pitfalls of investing. We can encourage you in reframing your fears. Ask us about what is different about this recession and what advice we have for your specific situation. Whether you are hesitant to get into the market or questioning your resolve to stay in, let us guide the discussion around your unique situation.
Then, let us remind you of our approach to investing. We have many factors we consider in allocation and portfolio diversification. One of which is investor sentiment. We take a contrarian view of how investors see the market to take advantage of the opportunities presented. We put into practice balancing the fearful and greedy markets for you, taking those decisions off your plate.
Furthermore, we can help you make a plan and stick to it. We are here to help you begin, manage, and finish your financial journey well, by accomplishing your goals and leaving a legacy of impact. During times like these, we are ready to sit with you and talk about the fears you have, and how these will impact your long-term plan.
Call or email us today if this is your, “What If…” or if you have another what if question.
** Past performance may not be representative of future results. All investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this market update may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data. Please contact your Financial Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.