It was only a week ago that we published an updated market view, so it might come as a shock to some readers to hear us advise today that they should forget about it.
Are we changing our market view? No.
What we are doing today is reminding readers that it isn't a "one size fits all" market view. Rather, it is a generalized market view by design, because we don't have the benefit of knowing every individual investor's risk tolerance, time horizon, and investment holdings.
The market view we produce is a guide -- and not gospel -- for investors contemplating investment decisions. It is grounded in objective analysis; and while we appreciate that some readers think it is super, we also recognize that it is superfluous for others.
Where it falls on that super-superfluous continuum for the individual investor will depend in large part on whether they have a need to make a change to their investment holdings.
Briefly, it is our position that the near-term risk for the equity market is elevated, because the market's valuation is stretched, the legislative process that is required for implementing tax reform is strained, and the Federal Reserve's easy monetary policy is becoming less easy.
Those factors are why we suggested investors with a shorter-term outlook (i.e. months, not years) might want to stop giving money to the market and start taking money from the market -- or, in another approach, aim to rebalance by trimming some positions in big winners and reallocating to cash and/or laggards.
Of course, investors with a longer-term time horizon (i.e. years, and perhaps decades) would understandably be less attentive to that position. That makes complete sense, too, based on the longstanding history of the stock market being a great wealth generator for long-term holders.
There is no more pertinent -- and recent -- defense of that position than the financial crisis of 2008-2009, which cut the value of the S&P 500 by nearly 60%. Everything that was lost by index investors in that crash has been recovered and then some, assuming they didn't sell, as the S&P 500 is up approximately 55% from the peak seen in 2007 before the crash.
In other words, investors at that perilous time who had the benefit of not needing to sell, or the fortitude not to sell, came out on the other side of things just fine, which goes to show that timing does matter.
Time and again, individual investors are reminded not to try and time the market. It is prudent advice that is often accompanied with an explanation of the benefits of dollar-cost averaging. Time, however, does matter.
In a perfect world, decisions to sell aren't forced on anyone, yet this isn't a perfect world.
Job losses happen; health problems happen; divorce happens; and any number of costly things can happen. When they do, it may be necessary to sell stocks to cover the related costs that can't be covered by other available sources of income.
That's why it is too trite to suggest buy-and-hold investors ended up just fine on the other side of the financial crisis. That might have held true for someone who was 35-years-old at the time, but it didn't necessarily hold true for someone who was 65-years old at the time and thought they'd be retiring in 2009 but no longer couldn't because the equity value of their retirement portfolio got cut in half.
Many were probably forced to sell back then, either out of fear or out of necessity to protect what money they could, sensing at the time that they didn't have the time to make back what had been lost.
No one had a crystal ball then to see what would come of the stock market by 2017, yet everyone had a front-row seat to see what had happened to it by March 2009.
To suggest today that the individual investor would have been better off doing nothing back then is true in a superficial sense, but it is also ignorant of the situation which was undoubtedly different at the time -- as it is today -- for every individual investor.
In effect, it's a "one size fits all" perspective -- after the fact!
What It All Means
We felt the need to clarify the message of our market view when we saw some dueling headlines on CNBC.com this week.
One headline said a top strategist sees a screaming buy signal for stocks and that there was a chart to show for it while the other headline said a chart shows the S&P 500 is primed for a pullback. Those headlines ran on the same day and at the same time.
We scoffed at the contradiction, because we knew the diametrically opposed positions would be utterly confusing for the individual investor, yet we subsequently smiled because we realized those disparate positions are what makes a market.
We have a market view, too.
Hopefully, the objective analysis behind that view is thought to be super, yet we certainly get it if some readers think it is superfluous. It might be totally irrelevant to them because they know they have the time to ride out any possible corrections in the near term; hence, they aren't overly concerned with the market's stretched valuation.
We respect that position given the stock market's long-term track record that is very much in favor of those with time on their side. Time, however, isn't always on everyone's side.
Stretched valuations today suggest it is prudent for the individual investor to have a good understanding of their risk tolerance -- which we don't -- and the timing of their cash needs -- which we don't -- if they are looking at their equity holdings as a source of funds.
Time matters and a "one size fits all" perspective doesn't fit the individual investor.