The Prudent Retiree - January 25, 2022
The three years 2019-2021 were extraordinary for the market. Returns were well above average. We all wish this would go on forever—it never does. Market action in 2022 has been gripping, to say the least. We are experiencing a correction with prices down about 10%. Why? Inflation is surging, and the Fed is going to tighten. Omicron has brought on renewed fear of the virus. Russia seems intent on invading Ukraine. Build Back Better broke, and politics remains ugly. All reasons the market may drop further.
Dan Hicks was one of the most idiosyncratic musicians of the 1960s and 70s. He didn’t play acid rock or soul or disco. His music went back to an earlier time. Dan and his band, the Hot Licks, played country swing infused with jazz and humorous lyrics. He did his “own thing” and didn’t worry about popularity. If you liked it, you listened.
By now, we should all know the market does its “own thing.” The market disregards our opinions and concerns. I’m writing after the close on Monday, January 24th. Most pundits expected a drop, and at one point, the Dow was down more than 1100 points. It closed up about 100 points after a furious last-hour rally. One of the wildest single day rides I’ve ever seen. Doom did not turn into gloom, at least yet. The market did its “own thing.”
After the returns of the past three years, we should not be alarmed by a normal correction. Remember the 20% correction in the fourth quarter of 2018 and the 30% correction in the spring of 2020. Corrections, not crashes. Not 2008. The market quickly recovered and went on to make new all-time highs. We will continue to follow a disciplined risk management approach. There is really nothing to be done for a correction. Crashes are a different matter, and we will change our position when our model indicates we should. For now, maintain your current allocations.
How can we miss a bull market if it just won’t go away? The occasional correction reminds us there is always risk and nothing better than rising stock prices. In the song, “I Scare Myself,” Hicks sang, “I scare myself when I let my thoughts run.” Easy to do in these chaotic times. Better to listen to the market and tune out the rest.
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