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Dip or Cliff?

I try to look at the bright side of things. But in this business, I’m often surrounded with negativity when it comes to markets and investing.

In 2009, you would’ve thought we’d never escape the financial crisis.

In 2011, everyone figured European debt would fry the planet.

Back in 2012, the U.S. debt downgrade was supposed to doom us forever.

In 2015, the Ebola virus was the end of times.

Then, volatility in 2018 was going to cause crisis.

To be sure, these are all legitimate concerns. However, if you took each of these opportunities to add to your stock holdings, you were handsomely rewarded.

“Buy the dip” right? While not a robust strategy, given recent times, does it ever make sense to not buy the dip?

But how do you know what’s a dip and what’s a cliff?

Well, only four bear markets in history had stocks drop 50 percent or more. So, most drops are dips. Still, you don’t want to get it wrong.

I marvel at the speed of the above-mentioned recoveries. In fact, the financial crisis recovery took only 17 months. From full blown crisis, back to normal, in less than two years.

But what if that ability to bounce back isn’t so strong in the future? Some problems could be longstanding.

First, we have politics. The population is radicalized, and many are supporting a communist for president.

Second is interest rates. We can’t withstand higher rates. If they jumped to historical norms, alarms would go off everywhere.

A third, ever-present possibility is full-scale war. However, that seems unlikely.

Lastly, we have black swan events that nobody expects…like a coronavirus outbreak.

The negative news is abundant. The question is, are we in a dip, or sliding down a cliff?

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