Winter finally arrived recently in North Texas. Our high temperature today is expected to be 25 degrees, with a low in the mid-teens. We haven’t seen cold weather like this in 362 days!
My friends up north assure me you get used to the cold weather, but down here in Texas that can be challenging – our high temperature last year on January 2nd was 69 degrees. Just this morning my youngest daughter strolled downstairs wearing shorts and a t-shirt. I guess she hadn’t heard the howling wind or noticed the blue grey skies outside. It didn’t take long before she was back upstairs looking for her jeans and a sweater.
We knew this day was coming. It happens about this time every year. Fall’s end and winter’s beginning shouldn’t be a surprise to anyone. No one frets too much about the seasons and we all know exactly what to do when they change.
Why are we so adaptable when it comes to the changing seasons, yet terrified of the next bear market for stocks? Just like the seasons, bull and bear markets come and go. We cannot control them or predict the day to day market fluctuations any better than we can accurately predict the weather more than a few days in advance. Yet we know with a good deal of certainty that every soaring market must eventually fall. Risk and return are connected, remember.
We are now at 24 months and counting without a 10% market correction. Global markets have seen double digit growth, economic data seem encouraging and interest rates remain relatively low. This market feels like the warm, comfortable days of summer. And like every summer before the last one, it will end.
My advice is to treat the next bear market like you treat the changing seasons. Be prepared of course, but don’t be surprised or stressed by the change. A market correction of 10% is as normal as the annual fall foliage or January ice in North Texas. In fact, one survey suggests corrections occur every 357 days on average. That means we’re more than 12 months overdue.