A Quick Take on the Stock Market’s Recent Declines

June 17, 2022 | by V. Henry Astarjian | Posted in Blog

What we have been seeing since December is the weakness in stocks that I had anticipated in my last investment letter, namely that the market has entered either a correction or a bear market. Practically speaking, how we label the recent action does not matter much. The result is the same, a contraction in share prices and a contraction in portfolio values.  

While a number of factors like inflation, higher interest rates, and the war in Ukraine have raised investor concerns and acted as catalysts for this downturn, the backdrop that has fostered these declines has been the stock market’s overvaluation. Investor expectations have been far too optimistic, even euphoric for some time, and have created a stock market bubble. As with all bubbles, any bad news is dangerous and is likely to burst the euphoria – we are seeing that now. The bursting of this bubble means that some rational thinking may return to the market, where fundamentals rather than manic emotions drive stock prices. 

I have been advising caution and selectivity for some time, and wherever possible in my clients’ portfolios, I have kept cash levels higher than I might otherwise. Cash is both a valuable hedge in downturns and a source of investing “power” when attractive buying opportunities present themselves, as they will in due course. The silver lining is that corrections and bear markets generally do not last very long. The stock market spends most of its time going up, not down.

For serious long-term investors, a big dose of patience now and a long-term perspective are invaluable to staying the course.  

Disclosures: Waterstone Advisors, LLC is a Massachusetts registered investment advisor. Registration with securities authorities does not imply a certain level of skill or training. Investing carries risk of loss, including loss of principal. The information and data presented in this note have been compiled from publicly available sources that are believed to be reliable. However, their accuracy is not guaranteed. Waterstone Advisors LLC does not guarantee the performance of the securities or strategies discussed or analyzed in this note. An investment in these securities or strategies may result in complete loss of principal. For additional information and disclosures, please see our ADV Part 2 (the “Firm Brochure”) in the Our Approach page of our website at  www.waterstoneadvisorsllc.com , or contact us at 978-828-2188