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Avoiding the Stock Market Mirage

By Richard Schooley


Patience is part of the journey.

Kevin’s Blog

As a boy, my family’s idea of a vacation was hooking up the trailer to our car and heading out to Thousand Trails for a week of camping.  We always left at dark-thirty in the morning to avoid traffic. It still took us over four hours to get to there which was an eternity to three boys in the backseat.  By the time we hit the last hour of the drive, a two lane road, my brothers and I would badger my dad to go faster and get us there sooner. That rush to the finish line nearly got us killed once.  

We were behind a very slow logging truck for what seemed like hours.  At our urging, my father pulled out and attempted to pass the truck on a long straight-away with no oncoming traffic.  About halfway, my father hit the brakes then veered back in behind the truck just as another 18-wheeler appeared from nowhere and rocketed past us.  The car was silent. My father then explained that he thought the road was clear, but as he was passing the truck, he saw a shiny area like water on the road ahead. It looked like a mirage. It turned out to be the truck.  

A mirage is an optical illusion caused by atmospheric conditions and can appear like of a sheet of water on a hot road.  The mirage my dad saw made the road look straight and clear, but was hiding a large recessed area of road that masked the truck coming in the opposite direction.  Today’s market could be creating a kind of mirage, similar to the one on the two-lane road, that could be hiding something unseen.  

Twelve-and-a-half million people are unemployed in the U.S. today. Stores and restaurants are shuttered. A friend who lives in Boulder, CO told me that the downtown area is deserted with “For Lease” signs everywhere.   The travel and entertainment industries are crushed and even with a vaccine, recovery may take years for certain sectors.  All of this while our stock market continues to set new highs.  

Be patient — this may be a mirage.

I think we may be rushing to arrive at a destination called normalcy.

I don’t believe our stock market is heading for another 40% – 50% drop, nor do I think a great recession is in the wings.  I do think we may be rushing to arrive at a destination called normalcy and if we are only watching the stock market—like a mirage—we might not see a truck coming the other way.  

Our world has changed, and our investing strategy needs to change with it. We cannot throw money into industries or stocks just because they are beat up thinking they will make a rapid recovery. It may take years to actually get back to February 2020’s level of performance across sectors.  Which means, as we get closer to a vaccinated population, herd immunity and a more normal lifestyle, we need to balance the pressure we feel to speed ahead with mindfulness of the time it will take to arrive at a new normal. 

This is a good time to review the plan for your financial life, make adjustments and perhaps adopt a bit of patience during this part of the journey.

Kevin C. Swanson's signature

Kevin C. Swanson
CEO, Potentia

This blog is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought. 

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