Supercalifragilisticexpialidocious
Did you know that’s a real word? Look it up. It’s been used so much since it was introduced in the 1964 Disney musical film Mary Poppins that it made its way into formal lexicon. According to the Cambridge Dictionary it means “extremely good” – and that’s what financial life has been like for stock investors the last few years. I wouldn’t be surprised to hear someone humming that delightful song after taking a peek at their investment gains recently.
But let me also point out a phrase from the opening scene of the movie Mary Poppins. The London chimney sweep Bert (brilliantly played by Dick Van Dyke) abruptly stops his song and dance in the park, looks up to the sky with a quizzical expression and says: “Wind’s in the East, mist coming in; like something is brewing, and ‘bout to begin…” (Bert’s quote to be continued below).
Something is indeed brewing in all sorts of assets…speculation. Gold, bitcoin and, yes, stocks are all reaching record setting values. As we all know, nothing goes up forever and there are a few interesting signs that values are getting ahead of themselves. By way of example:
- A graph of the average YTD performance of companies shows that the highest returns (34%) have been from companies listed on the Nasdaq with no (read that as “0”) revenue. That means companies with apparent potential, but no profit to show for it, are going up in value the fastest.
- That same graph also shows the average YTD return for money losing companies on the Nasdaq is 18%. Apparently, these money losers are sought after for their potential, too.
- The concentration in the S&P 500 Index is increasing dramatically. There are around 500 companies that make up the S&P 500, but 39% of the total value of that index is made up of just 10 tech stocks. That index has never had so few stocks make up such a great amount of its total value.
- One day last week when the Nasdaq Index as a whole was up 0.6% to a new all-time high, there were actually 2 times more companies that were down for the day than up. The smaller number of companies that went up more than made up for the vastly larger number of companies that went down. When that happens, we call it a lack of breadth in the market and it has not happened to that extent since 2021, just before a market correction.
- I’ll stop with the above, but understand this list could keep going, and include the government shutdown, China, war in Ukraine, and so on.
Believe it or not, the information above is not intended to scare you. It’s intended to condition you so that you are ready—intellectually and emotionally—for the inevitable. Sooner or later—and I honestly have no idea when—the stock market as a whole will drop to lower values. It could come tomorrow, and/or it could not come for months or years, but it is indeed coming. I say that with confidence because, well, market corrections always come, especially after valuations get ahead of themselves.
If you are a committed long-term investor, you will be ready for the market drop, and you will, with the help of your seasoned advisor, stay the course with your investment plan that (hopefully) is tailored just for you — in good times and in bad. Great companies have always sustained their inevitable march toward your financial goals. Sometimes they march up big mountains of gains (like today) and sometimes they march down vast valleys of market drops, but the market has always slowly and inevitably marched forward, led by great companies in great capitalistic systems.
Look, the market on average is down 10% every 19 months, and down 20% once every 6-10 years. We are due, even without the factors described above. The real issue isn’t the market, it’s whether you will do something silly (like abandon your investment plan) when that happens. There are lots of investor newbies now jumping into the market like there’s no tomorrow. Many of them have never really lived through a market correction and they will cut and run at the first sign of trouble.
When the heavy weather does indeed come and the urge to head for the door is whispering in your ear, harken back to the beginning of Mary Poppins and remember the rest of Bert’s line: “…can’t put me finger on what lies in store, but I feel what’s to happen, all happened before.” Nothing here is new. Get in the right state of mind to be a successful investor.
Fun Fact: If you ever used the monorail system at Disney you might be interested to know that the success of the hit movie Mary Poppins funded its development. The system is named MAPO (MAry POppins) in honor of the film.
