That is exactly the headline reported by CNBC a couple weeks ago. The article highlighted it was one of the largest weekly net withdrawals from stocks on record, and the most since the weeks after Brexit.
After 20 years in the financial industry, I’ve become somewhat of an amateur market historian. What was most interesting about the CNBC article was that five years ago, on December 27, 2012, CNN wrote essentially the same article.
That day, the headline was "Investors yank $150 billion from stocks for 3rd year." The article completely ignored the fact that the equity market's total return during those three years had been about 40%. Rather, it applauded the excuses for investors' continued terror of equities…such non-events as: high frequency trading, the 2010 flash crash, NASDAQ's bungled Facebook IPO, and the Knight trading glitch. (Does anyone even remember any of these?)
With regard to the 2012 article, we have the benefit of hindsight. That is, we know what happened to all those who followed the crowd, and "yanked" their capital from stocks on December 27, 2012. In 2013 alone, the S&P 500 Index shot up 30%. (Even the dividend jumped 19%.) Equity values and dividends have been relentlessly making new highs ever since.
We can't say with certainty that last Friday's "yank" headline will turn out to be as spectacularly wrong as 2012's was. But I confidently assert that abandoning equities when that's what the crowd is doing will usually prove to have been a big financial mistake.
I believe that the highest and noblest function of SRQ Wealth is to help affluent, well-intended clients do what doesn’t come naturally…buy low and sell high. Buying (or sitting tight) when it seems like armageddon is just around the corner and selling (or being patient) when it seems everyone is making more money than you is not for the faint of heart. Not to mention other commonly avoided tasks like saving enough for retirement, owning the right type of life insurance and seeing that your will is up to date.
At SRQ Wealth, we have a rigorous, but not rigid, investment process that helps ensure our clients don’t fall prey to the excesses of bubbles, but also find opportunities where and when others are burying their heads in the sand. If you’re curious how our process stacks up to your current advisor, you are just one click (firstname.lastname@example.org) away.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.