Dirty Harry’s iconic question puts in perfect context the limitations of luck. Harry’s “Punk” may or may not have been a good gambler but it’s clear he was a terrible investor.

Try as we must, and as we do…to profess to our clients (and anyone else who will listen) that there is a huge difference between gambling and investing. Sadly, as long as both have an element of risk the argument stays alive. Some will argue that at the end of the day there is little to no difference. Our answer to that is simply that such a belief creates the additional and unnecessary risk of it becoming a self-fulfilling prophecy. Almost everything in life carries some element of risk but almost every kind of risk can also be mitigated. It’s really your choice.

Professional investors understand that investing is a process and there are rules. Following the rules doesn’t always make you rich but it’s pretty good at keeping you from going broke and a good way to protect what you have.

In the investment world we have Bulls and Bears, each defined by their native tendencies to be optimists or pessimists. In case you don’t recall, an optimist is one who believes that we are living in the best of all possible worlds while a pessimist is afraid that might be true.

Markets driving higher will always, eventually, bring the Bears forward with their argument that if the markets have increased X – many months in a row, it MUST be time for a reversal. But wait, isn’t that just another way to express the oldest gambler’s fallacy; that if a flipped coin has gone heads in a certain number of flips a tails has better odds on the next flip. It’s not true, of course: Regardless of how many times the coin has produced a particular result, the odds of the results of the next flip are still 50 / 50… and always will be.

At the moment a good number of market watchers are telling us that we could be in for a correction, perhaps of about ten percent. Maybe that’s true but maybe too, they are just reacting to the gambler’s fallacy. Our position is that there is almost never a time when the markets could not decide to hand us a ten percent correction. Corrections come and go. Trends also come and go. Those are much more useful than fears of corrections. We are always appreciative when luck comes our way but we also know that it’s not very reliable. If the doomsayers get their correction, we’ll let them have their day. And then we’ll have ours.

Ron’s Market Minute – What’s Going On: A Weak Week

The long-term trend of the stock market is still up and the wide, intermediate-term trading range in small cap stocks is the only hint of long-term weakness.

 In the short-term, most major stock market indices have trended down since the disappointing August jobs report. Market breadth deteriorated last week as stocks turned down, but low trading volume and increased volatility are fairly common during summer months, especially during the Labor Day shortened trading week. If the current decline ends at this point, this short-term downtrend will simply be viewed as a down-leg in an ongoing intermediate-term uptrend. If the decline continues, the use of stops can limit risk.

 September and October have the reputation for being high-risk months. A multitude of concerns have the potential to reinforce this bad reputation, including the Delta variant of the covid virus, proposed massive infrastructure spending and tax plans circulating in Congress, inflationary concerns, and changing Fed policy. Any and all of these items, as well as yet unknown events, have the potential to move markets during the next two months. However, we do not make investment decisions based on historical seasonal trends. Charts allow us to see the effect of market forces before we fully understand those forces.

On the positive side, the Junk Bond Indicator is generally a very reliable indicator of the overall stock market environment. For now, the Junk Bond Indicator is positive implying recent weakness is unlikely to lead to a Bull market top.

Thus, we will continue to stay fully invested and keep an eye on our stops to limit potential drawdown. Back to the historical view: next week is typically a weak week (today is triple witching Friday when all of the options expire- the following week is normally on the weak side).  And that is most often followed by a ‘strongish’ week. That strong week as September ends and October begins usually ushers in the strongest quarter of the year. 

We’ll see. This year has certainly been anything but typical.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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