The Market, The Media and the Madness of Crowds

Global stock markets have moved into correction territory as major indices at home and abroad continue to fall. The media purports traders fearing slow growth in China and the devaluation of its currency are to blame. More sober views point to the absence of any meaningful correction in stock prices since 2011. Remember, declines of this nature are common throughout financial market history.

No matter your interpretation of the past week’s events, the media continues fueling the fires of fear and panic. During a brief call last week, one of my colleagues quipped, “the media is to market declines as wind is to forest fires."   I could not agree more. At some point on Friday, selling at any price began to take hold and the crowd appears to be in panic mode.  Monday's trading in the US saw the algorithm traders driving the Dow Jones Industrial Average down by over 1,000 points at the opening.

Markets move down swiftly fueled by fear, not fair valuation.   We would be wise to consider that this too shall pass. The ubiquitous "Dow" fell by more than 500 points on Friday. It seems a large decline yet pales in comparison to a similar 500-point drop in October of 1987. On that day stock prices fell more than 20% in a single trading session. Investors could not escape the drone of the media making comparisons the to the “Great Crash” of 1929. Much to the their dismay, markets recovered quickly gaining back more than half of the “Black Monday” losses in just two trading sessions. The bull market that ensued marched forward well into the late 1990’s.

So what is going to happen next week and in the months to come? No one can say for sure. Predicting short-term market movements is a fool’s game.

 My advice for the days and weeks ahead.

1. Don’t try to predict where markets are heading; it’s impossible.

1. Turn off your TV and avoid doomsayers’ on the Internet. They make their money selling advertising and newsletters.

1. Don’t panic. Now is a time for reason, not emotions.

1. Know that corrections and crashes have come before and recoveries and expansions are what follow.

1. Hug a loved one; the experience is priceless.