Content provided by Steve Donahoe, CFA, CLS Senior Portfolio Manager
Recently, I spent some time in the San Jose area presenting at a couple client events. In that part of the country, the grass was green and the flowers were blooming, which is a treat for everyone any time, but it is especially enjoyable for a Nebraska boy to see and smell spring so early in March. Fortunately, the weather followed me home as we had a nice couple-day warm up in Omaha when I returned.
When I returned home, my wife and I spent some time together walking around the neighborhood and talking about spotting our first robin of the year. Sure enough, we spotted one by the time we got home, meaning warmer weather is on the way for a more permanent visit.
Being native to this area, we also know that just because we saw a robin doesn’t mean winter is over. There is still time for some cooler weather and the potential for snow remains for a couple more weeks. But alas, we know the joys of spring and the activities that follow will soon be here and we will be fighting the dandelions in our yard and telling the kids if they break our window there will be trouble as they play kick ball in the back yard!
The weather in Omaha is a lot like the markets. Sometimes it is calm and sometimes it can be quite stormy. The weather can even be predictable at times. However, just because it is calm one day or for a nice stretch of time, does not mean there is going to be a bad storm. Often times the calm is broken by run of the mill thunderstorms that simply produce some needed rain and a little noise. Just like in the markets, sometimes market run ups simply have small setbacks that allow the market to consolidate and then move on to new highs.
But as we all know, the weather can get very ugly at times and produce conditions that can cause a lot of damage. Just like some events can drive markets down beyond a simple consolidation phase. The key to dealing with the severe weather is to have a plan. Get a weather radio and know where to go if a tornado is coming your way. For dealing with negative markets, having a plan is just as important as dealing with a tornado. If you have a plan in place, you are more likely able to deal emotionally with market turmoil in a more calm fashion. You might still be scared but you can act rationally. Diversified, balanced portfolios have proven to be an effective defense against market turmoil over the long run and that is the core of what we do at CLS.