Staying Invested Is Not Easy
A recent analysis of a rare bullish signal may have given the impression-trend following is relatively easy to implement in the real world. Volatility tells us nothing is easy in the markets.
Volatility Is A Fact Of Life In The Markets
Would it be easy to stay with the trend during the bouts of volatility below?
Examples Above Occurred Within A Bullish Trend
All four examples of S&P 500 volatility above took place between points A and B below, demonstrating that capturing long-term gains requires emotional stability and a high degree of discipline. Point A is in 1995 and Point B is in 1999.
Four More “Give Back” Examples
Notice the dates on the four charts below; they all fall between 1995 and 1999.
2016: Why Are Stocks Holding Up After Talk Of Rate Hikes?
While it is too early to declare the stock market is going to be able to shake off renewed talk of rate hikes, the early returns fall into the “better than expected” category. The Wall Street Journal headline below aligns with our analysis of Jackson Hole, which can be found at the 25:48 mark of this video.
Why Can’t We Just Buy And Hold?
There is nothing wrong with long-term buy and hold. However, due to the inevitable large drawdowns that a buy-and-hold investor must endure, buy and hold is not easy to implement and it can be emotionally draining.
Stocks Always Come Back
The two charts below show in the long run buy and hold has proved to be an effective strategy; the question is what happens if the 17-year or 26-year periods below occur during your retirement? Many investors cannot afford to wait 17 to 26 years for buy and hold to make it back to break even.
Some may counter with “those are extremely rare periods”. That may be the case, however, the S&P 500 hit 1,576 in March 2000….the S&P was at 1,576 in 2007….and again in 2013. The same can be said for the three “the market has gone nowhere” visits to 800 in 1997, 2002, and 2009 (see 1576s and 800s in the chart below).
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