Putting market losses in perspective

December 19, 2018

Depending on how the last part of December plays out, we could be bombarded with doomsday headlines. Already I've seen articles talking about the "worst start to December since the Great Depression" from both CNBC and CNN.  The market losses are showing up on local news stations and in local papers. While long-time readers know I have had major concerns about many big picture issues our country, economy, and the markets must address in the years ahead, whenever I see mainstream media stories talking about the market, we enter a realm where emotional responses can take over our decision making.


This short video discusses how our various investment models have performed during the market sell-off. Understanding this may help you better understand the performance of your overall portfolio whether or not you have investments with SEM.

Here's a few highlights from the video:

  1. Going back to the 1920's, the stock market has a 10% loss (from high to low) an average of one time a year. Remember, to get to an average you have periods above and below that average. This is the second 10% loss in 2018, but the last time we experienced this was late 2015 & early 2016. That was the 2nd 10% loss in 10 months. 

  2. The stock market and most of SEM's investment models finished the year negative in 2011, 2015, and of course 2008. Losses can happen. It is very likely most of our investment models finish 2018 in negative territory.

  3. Not to make predictions on 2019, but 2012, 2016, and of course 2009 ended up being very strong years for the stock market and SEM's investment models. Abandoning an investment simply because it lost money is almost never a good idea.

  4. Overall, nothing has fundamentally changed since the end of 2017 when stocks were at euphoric highs. Economic growth is still expected to be strong. Scroll to the bottom for a couple of videos explaining how just a slight change in the growth outlook can cause severe losses for the market. This helps put the recent losses in perspective.

  5. Finally and most importantly, each investment should play a specific role in your overall financial plan. If you are uncomfortable with the current performance of your portfolio, PLEASE discuss this with your financial advisor. If you don't have a financial plan, let me know and we can help you put one together (for free). At that point we can then review your investment allocations and see if any adjustments are needed.


The Good:

  • The economy is still growing (just maybe slightly slower than most people already priced in.)

  • The more the markets go down, the more opportunities are created for those with cash on the sideline (like SEM). Valuations are still high, but are no longer in "extremely overvalued" territory as they were in September.

  • SEM's TACTICAL models are already in "defensive mode", which means losses in the weeks/months ahead should be relatively small.

  • SEM's DYNAMIC models are in "neutral mode", meaning they already took some risk assets off the table in November. They could got to "bearish mode" if the economic indicators begin pointing towards recession.

  • SEM's AMERIGUARD models will re-adjust at the beginning of the year. If necessary they will pull money out of riskier assets if it appears likely the 1st quarter of 2019 is likely to continue the current downtrend.


The Bad:

  • We're 10 years into the economic recovery and bull market. We are long overdue for a recessionary bear market, which typically brings a loss of 35-55% for the stock market.

  • Small adjustments in the expected growth rate causes an increase in the risk premium means significant declines in the stock market. The videos at the bottom of the page explain how that works.

  • During the recovery individuals, businesses, and the government all accumulated massive amounts of debt. As interest rates rise (which could be a bullet point by itself) it will be more difficult for them to refinance this debt, creating stress in the credit markets.

  • The social mood in our country is volatile. The mid-term elections basically showed a 50-50 split between the two parties, making the chances for stalemates in Washington the next 2 years highly likely. 


What you should be doing now:

Remember each investment belongs in a specific "bucket". Each bucket has a different purpose, which means needing to have a longer time horizon for the riskier buckets. If you do not know where each investment fits in your overall financial plan or if you are uncomfortable with your current portfolio DO NOT PANIC. SEM has a wide range of options to cover the entire return-risk spectrum. In other words, we can customize a solution for you that meets your financial plan, true risk tolerance, and your investment personality.

Finally, if you are NOT an SEM client (or you have assets at some of the big name managers), I want to highlight the advantage SEM's active approach has over most traditional managers. (Click here for more information)



Please reload

Web and Internet news concept with rss f
Featured Posts

Investment Grade Junk

September 11, 2019

Please reload

Recent Posts

March 27, 2020

March 25, 2020

March 12, 2020

March 6, 2020

Please reload

  • LinkedIn Social Icon
  • Twitter Social Icon
  • Facebook Social Icon
  • RSS Social Icon

Related Posts

Please reload

© 2016-20 Strategic Equity Management, Inc. dba SEM Wealth Management. Site created by Courtney Hybiak.

This site is for INFORMATIONAL PURPOSES ONLY.  The comments and posts published in the SEM Trader's Blog ARE NOT investment recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.  CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Investing in the stock or bond markets involves risk and may not be suitable for all investors. Before making any investment decisions you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists you could sustain a loss of some or all of your initial investment and therefore you should not invest money you cannot afford to lose. You should be aware of all the risks associated with your investments and seek advice from an independent financial advisor if you have any doubts. All investments involve risk including those managed by SEM Wealth Management.

Opinions expressed at www.stratequity.com, www.semwealth.com and semtradersblog.com or the previous Trader's Blog site are those of the individual authors and do not necessarily represent the opinion of SEM Wealth Management or its management. Any opinions, news, research, analysis, prices or other information contained on this website, by SEM, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. SEM will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.


The use of this website constitutes acceptance of our user agreement. Past performance is NOT indicative of future results.

***Anywhere performance of SEM's Investment Models is used, please refer to our Performance Snapshot  which contains details of the performance calculations for each of our investment models.***


There is no representation made as to the future results of SEM’s programs or if they will be profitable.

For additional information on the author and SEM Wealth Management, please see our DISCLOSURE DOCUMENT (ADV Part 2).