No One Really Knows if a Downturn is Eminent
Transcript:
Easan Arulanantham:
Why should I stay in the market? If I feel we’re going to have a downturn soon?
Tom Vaughan:
Yeah, that’s a good question, right? I mean, so if you feel like we’re gonna have a downturn? Well, one of the first things you got to think about there really quickly, okay? Because it’s really interesting, and I have run across this a lot. There are people that are really, really, really good at looking at the markets and understanding the markets and have spent a lifetime, you know, looking at the markets who don’t know that a downturn is going to come, they might think one is going to come, or they might have some thought processes to why one might be coming, but they don’t actually know, nobody knows, including, you know, the person is probably asking his question, that’s one of the things you have to remember, always have some humility about the market. And I know I have to remind myself constantly of that, is that, you know, we don’t know there’s going to be a downturn. If we go back and perfect, let me just share that, again, it’s kind of amazing. We had some very major investors, George Soros included and whatnot, that felt like this market was gonna go way farther down.
During this downturn, they were wrong, we have had all along here, people that felt the market was gonna go down, it doubled, right, it just in this very short period of time, and so you just want to invest and what you want to do, in my opinion, is find the right mixture of stock and bond to create the right risk portfolio, so that if it does go down, you’re okay, you know, you don’t have to be 100% in stock, if that risk doesn’t match your profile, you know, maybe you should only be 20% stock or 40% stock or what have you. But you have to understand that you don’t know that, if the market’s going to go down, you might feel like it’s going to go down. And I often feel that way. But you need to set that feeling aside, find the right mixture and buy. Because most of times the market does go up look at it the last 25 years, and we’ve had two big downturns in that timeframe and still up a lot. So, you know, getting in there, it’s it’s really it’s not timing the market, that’s important as as as time in the market, if that makes sense. For the more time you’re in the market, the more chance you have of kind of really, you know, benefiting from that. And so be careful with, you know, I think the markets going to go down, because you’re waiting in the market just goes up and what have you and maybe you’re right, and it goes down.
But if you have the right portfolio, then maybe it doesn’t go down past your pain point, so to speak, and you can kind of hang in there and let it come back. And as that market comes down, you know, sometimes it gives you some really good information. And you might we’ll make a few adjustments and that downturn and then really catapult out when it starts to come. That’s what we did during the pandemic. You know, we bought some stocks, Apple, Microsoft on March 5, we did fantastic with those. And I bought those because they were holding up better than the market. I like downturns in the sense that it tells me you know what, the market really values. It’s sort of like a sifting mechanism. And that’s what jumps out. So I would be investing at any point in time without the thought process of trying to figure out whether this is a top or not as far as that goes.
Easan Arulanantham:
Especially since you know, if you change your portfolio and you miss out on those upside. And you’re really giving up a lot if the market just continues to go up when you predict it goes down. That’s a lot of money loss.
Tom Vaughan:
Yeah. And you can’t you can’t really get that back very easily. I guess the only time I’d ever be cautious is when the market is actually in a downturn. You know, for example, you know, I think it was about the beginning of March, we froze new money going in, you know, and tell I think about the middle of April, when things had kind of bounced up a bit. And, you know, all I’m doing there is that, you know, the the momentum has changed the price crosses through the 200 day moving average. You know, there’s some warning signs that you know, I would heed at that point when we’re truly in a downturn that’s falling apart. But at the moment, we’re in an upturn, no doubt about it, whatsoever. And so trying to just guess that the next couple of weeks or months or quarters are going to be down. That that doesn’t work, historically, at least in my opinion. So you know, I would be in there personally.