With the constant barrage of market analysis and opinion on financial television, in newspapers, or through the Internet - it’s easy to get sucked into the narratives of the day and drama played out in the media. And none are more intense than when stocks are falling.
We often hear interviews of money managers during periods like this, and the question is asked "are you getting defensive?"
That's the exact opposite of what they should be asking. When stocks are up 15-20%, and acknowledging that the long-run average return for stocks is 8%, that's the time to play Defense. When stocks are down 15-20%, that's the time to
The reality is most investors should see declines in the U.S. stock market as an exciting opportunity. The best investors in the world do. The same can be said for average investors.
Here's why: Most average investors in stocks are NOT leveraged. And with that, they should have no concern about stock market declines, other than saying to themselves, “what a gift,” and asking themselves these questions: “Do I have cash I can put to work at these cheaper prices?" And, "where should I put that cash to work?”
Billionaire Ray Dalio, the founder of the biggest hedge fund in the world, has said what we think is the most simple, yet important fact ever said about investing. “There are few sure things in investing … that betas rise over time relative to cash is one of them.”
-Nasdaq
