Markets pullback, bubbles pop, and economies cycle. Since the beginning of time, this has been the case and today is absolutely no different. I am certainly not being trite nor do I enjoy losing money however what is playing out in the markets at this very moment, regardless of the catalyst is as old as the first trades under the Buttonwood tree in the 1800s.

We all know the common phrases such as ‘be greedy when others are fearful and fearful when others are greedy’ or the staple ‘buy low, sell high.’ In theory, we can spout these off quickly however in practice they’re extremely difficult to do. The reality is that when chaos ensues and uncertainty abounds, our natural inclination is to tuck into our shells and wait for the clouds to pass and better times to be upon us. The irony of course is this is precisely the time we should go hunting for opportunities.

As I write the S&P is now down 17% for the year with the NASDAQ having fallen more than 27%. Recent bubble stocks in the super high growth area are easily down 70 and 80% and the Crypto space is being decimated with assets such as ‘stable coins’ falling more than 70% which doesn’t make them so stable, to begin with.

While the volatility is high, this decline is also taking with it some of the greatest companies of our time as well as beginning to uncover some of the future leaders. While it remains very difficult to identify who will prevail on the other side of this mess, what will prevail are the indices that hold baskets of stocks such as the S&P 500.

Over time these indices cycle through the companies that are growing and warranting their involvement in such a stellar group. The companies who don’t make it are removed and replaced with the new. Adding to an index during a decline such as this or holding onto a passive index allocation has historically ensured the best outcome.

The metrics I study to let me know where we are in the short and intermediate-term suggest we are more oversold and beaten up than we have been during both the Covid lows and in many sectors the 2008 / 2009 bear market. The negativity among investors is higher than it has been in decades and suggests we’re close to a significant change in character.

My conversations with folks have moved far beyond ‘taking more risk’ as I mentioned last summer to now talking about the benefits of ‘staying in.’ To say fear is high is an understatement.

While I have no idea where markets will go today, tomorrow, this week or next one thing I know is that this decline is nothing new. It is not the first, not the last, and more than likely an opportunity that will look obvious in the rearview mirror.

For our passive accounts, we’ve been sitting on high cash levels which we’re looking to begin adding back into this decline. We will move very slowly and pick our spots carefully. I’ve seen this story before and I’m confident the markets will eventually prevail.