written by reader What is going on with the markets? I’m finally running up better than double digit returns

By backoffice, February 5, 2018

along with some triples and then everything starts going south. Even cryptocurrencies are taking a beating
and I haven’t allocated that much to it to begin with. What’s causing the turmoil that started last Tuesday?
What’s the consensus on $TSLA and $AMZN? Are these viewed as buys still? Thanks, I needed to vent a little today.

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Travis Johnson, Stock Gumshoe

I’ll tell you for sure what’s happening in about two years. πŸ™‚

I’ve never seen a year start so aggressively, with such a massive surge in the markets, so I guess it’s logical that it should start February with surprise volatility after we waited so long for volatility to return.

The market is overpriced compared to historical averages, but that has been true for three or four years now, so it’s awfully hard to point to a single catalyst that makes sentiment shift… or to know whether it’s a permanent shift in sentiment or it’s just some profit taking as folks saw interest rates rise and started to worry that it’s time to take some cash off the table and rub the worry beads. Cryptocurrencies have also fueled the crazy animal spirits of the market, I expect, as have pot stocks, and that kind of loud party often ends badly and ends up making the whole neighborhood grouchy for a while.

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deane
deane
2 years ago

How long will this correction last, is this something major or short term I have already lost all my gains for this year?

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Travis Johnson, Stock Gumshoe
Reply to  deane

I certainly don’t know, and can’t promise you anything about the future. My general position is that investing in stocks should be a long-term commitment to staying invested in a diversified portfolio, but not necessarily always staying invested in the same stocks. The fact that the market surged up by 10% and back down by 10% in the course of a month or so (roughly speaking) used to be fairly common, but we’ve been lulled into complacency by a relatively placid and rising market so these bigger jumps or drops feel a lot more dramatic than they really should.

Here’s what I told my mother this week (she’s in her 70s, so your situation may be entirely different): If you need the money in the next two years, it shouldn’t be invested in anything, either the bond market or the stock market, that’s what cash is for. If you can wait it out if the market collapse by 50% next year with the reset of your capital, then diversify into stocks and bonds as fits your risk tolerance and return needs.

Beyond that, the future is as inscrutable to me as it is to anyone else — I did share my forecast last month, but it did not include anything specific about a big drop in early February… and I wrote about my decision to do some hedging a couple weeks ago, but did not expect that hedge position to bear fruit so quickly.

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deane
deane
2 years ago

Thanks Travis, I been following your portfolios for many years, I know that I am a risk taker, but in most cases I am along term investor. But I tend to hold to long and sell at even or at a slight loss.
The market, to me seems to way overpriced so was thinking it might be a good time to sit out however I did that before and regretted it. I do not follow the market close enough and I have limited time available to research companies so by the time I pull the trigger it’s always close to short term peak. Any way just thinking of ways to correct that problem.
Just hate it when the market drops right after I stick more money into it!
Thanks,
Deane

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