October Strategy Notes

Aloni Goh Wealth Strategy Notes: 

After a volatile start, equity markets bottomed out and began its next leg up in the ongoing secular bull market. With this corrective phase over and done with, we should see a steady uptrend for the next few months. The restless rotation continues, however, and not all sectors are moving up at the same time. This is healthy and bodes well for the long-term health of this great bull market.

Being diversified, we are seeing steady gains in our portfolios without too much fluctuations in the bottom line. For investors who are not diversified, they are seeing wild swings in their portfolio values, especially those who chase high-growth concept stocks. While at some points during the bull phase they see outsized returns, the danger is that they may spend months, years and even decades of zero or negative returns as they hold through secular bear markets thinking that it is just another correction.

Extra Reading: 

What’s the connection between a corrective phase and a bull market? Even though they are financial terms to describe completely different kinds of market movements, they are also inextricably linked to one another. Fisher Investments Canada has a lengthy piece on this concept called “Understanding Bull Markets”:

“Bull markets are periods — often multiple years — when equity prices generally rise in the longer term. During bull markets, equity market indexes and equity valuations generally rise.

However, it’s crucial to understand that bull markets generally don’t rise in a straight line. Equities normally encounter bumps or drops along the way, usually driven by overblown investor fears. We call some of these bull market drops “corrections”… Because they are usually fear-driven, they can be happen at any time for any or no reason and are normally sharp and swift. When they are over, equity prices may quickly resume their upward trend, which can make trying to time bull market corrections a futile exercise…

Being bullish is a form of optimism and means believing the market will rise in the foreseeable future. History has shown bull markets last longer and returns are stronger, on average, than bear markets’ losses….

… investors who act on emotion typically sell their investments near market lows. Due to the losses incurred, investors may be reluctant to invest again when the market initially rebounds. They want more proof the rebound isn’t just a temporary bounce. As they wait on the sidelines, they miss out on the often steep bull market beginning… Missing this initial upswing can set investors further back and may even prevent them from reaching their long-term financial goals.”