People normally associate spring with rain; not autumn. Metaphorically, however, it’s raining out there. As the calendar moves into the official start of the autumn, markets on both sides of the border are facing the prospect of a correction – a drop of 10% or more from a previous peak. The terminology is telling because it is really just another example of industrywide Bullshift. Why is it a “correction” if markets go down 10%, but not if they go up by that amount? Is the market unidirectional in its inability to properly calibrate valuations? I digress…
There is a difference between knowing something is going to happen and being prepared for that eventuality. I do not know what the future holds, but I remain prepared for the possibility of the pending correction to morph into a full-blown bear market (i.e. for the drop that just began to continue until the fall from the previous peak exceeds 20%).
Scouts have a motto to “be prepared”. What about you? Warren Buffett referenced the idea of preparedness in his 1982 letter to shareholders by coining what he calls the “Noah Principle”, which says that “predicting rain doesn’t count; building arks does”. Back in the day, the rest of the world laughed at and mocked Noah. He went about his business anyway. These days, many advisors mock me for being worried about valuations and economic and political uncertainty. I’ve nonetheless ‘built an ark’ for my clients, so to speak. I’m no weatherman, but the storm surges on the U.S. Gulf Coast have already dropped massive amounts of water. What if the rains continue and spread to the rest of the continent – or the rest of the world? Wouldn’t it be useful to have an ark at a time like that?
