That headline might sound a bit strange at first. If stock markets lose 4% in a day, as they did yesterday, it makes a big dent in our asset values for now.
Long term investors will know that such setbacks are absolutely normal and may continue for a while and if they have diversified portfolios because they have looked for risk control, some of the damage limitation will have kicked in anyway. For them excellent and in fact rather surprising gains at the start of this year will have been wiped out, but long term returns will still be looking pretty good.
Many of my readers are building new portfolios. It makes me nervous when people have to do that in a constantly rising market as even phased purchases are at an ever rising average cost and if a setback happens towards the end of the process, there has not been time to build a profit ‘cushion’.
So for me, a setback from what I have felt for a long time are ‘momentum’ driven values, detached in many cases from fundamental logic, is a good thing. Portfolio builders can phase money into markets at lower prices and thereby lower their average portfolio acquisition costs.
Even long term investors who read my ramblings may have raised cash over the last couple of years and if the market setback turns into a proper ‘bear’ phase, they will have liquidity to pick up some better value assets.
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