We have talked about the likelihood of a market correction several times in the past. I have been in the investment business since 1973 and have experienced quite a few corrections in that 45-year span. They are never quite the same, stem from different conditions and would never be considered pleasant. Today’s variety is occurring in a reasonably strong economy with record unemployment and a decent economic forecast for the next year. So what gives? To me, It looks like a touch of investment mania especially in the technology space; runs amuck. When stocks are moving up so rapidly in concert it’s a good time to try and understand why. The news coverage during strong market appreciation departs from security analysis and morphs into a chorus of cheerleaders. Investors seem to get caught up in the euphoria until an even louder voice armed with reason spells out with clarity what’s wrong with the groupthink. Is there really tested logic in place that makes a stock worth 50 times its current earnings? Maybe new companies with new technologies that appear to have little competition and unlimited growth potential can justify it in the short term. But competition and management mistakes eventually appear. Why did so many of these whiz kids/ entrepreneur kings leave all their customer’s data unprotected?
I might add in my own history of corrections, the majority of companies that led the correction also remained in and grew their business. You will note that I have included a market risk update for 2018. This summary was written by Brad McMillan, Commonwealth’s Chief Investment Officer approaches the analysis with a fine quantitative view. Take the time to read it as his process has served many investors well.