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A very moody Mr. Market

Benjamin Graham, one of the early proponents of value investing, drew a parallel of the stock market (Mr. Market) as a fellow who turns up every day at the stock holder's door offering to buy or sell his shares at a different price. At times, the price quoted by Mr. Market seems plausible, and other times it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.

Below are the major market pullbacks during this current market up-cycle. As you can see, there can be deep losses that occur within an upwards trending market. Each occurrence is usually characterized by a spike in volatility, a drop in investor sentiment, and the beckoning questions of, “Are we entering a bear market?” and “Should I sell my stock holdings?”

A bear market is often defined as a 20% decline in a market. As such, could you imagine if on October 3, 2011 (when the S&P 500 had dropped nearly to the brink of bear market territory) that you decided to throw in the towel? A magnificent increase in value you would have missed.

Let’s not let the daily mood of the market allow our emotions to overcome our objective.

Cory Nakamura CFA, CFP®

Chief Investment Strategist and Financial Advisor

CFA Charterholder



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