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When is it OK to "Skip the Dip"? - NEVER at an Ice Cream Shop!

Growing up in New England, we had several “regional” ice cream shops – many of which have faded into oblivion - unfortunately much like the NY Football Giants 2017 & 2018 seasons!  One of our local Connecticut favorites was Carvel’s Soft Serve whose owner Tom Carvel was the company’s iconic TV pitchman urging folks to buy among other treats – a whale shaped ice cream cake for “your Whale of a Dad”! 

One of the “go to” Carvel items was the soft served swirl cone dipped in either Red, Brown or Tan “Dips” which hardened to enhance the flavor profile of the product. They are omnipresent now – but in early to mid-1970’s a “dip” was a thing! One of the counter servers had a standard line “Never Skip the Dip!” when coaching up a customer pondering their order. Looking back, I’m not sure how hard the decision was with only Chocolate or Vanilla / with or without a dip into a vat of a "sweet plastic" tasting Chocolate, Strawberry or Butterscotch as the only decisions facing you. (I’ll pause for a second now, so readers can mentally go back to relive their childhood ice cream experiences!)

OK back to the here and now – and specifically referring to the current volatility in the stock markets, on occasion it is very much permitted for an investor to in fact “Skip the Dip” – and now feels like just such an occasion. The recent spike in volatility over the past 3-4 weeks (coupled with a 10+% drop in most stock prices and indices) has many advisors urging clients to “buy stocks when they are on sale” framing their position with leading questions such as “would you buy a car if the price dropped 10% in a month” and other sales blather. 

We have spent the past week plus picking the brains of the thought leadership at a variety of leading national asset management firms and after digesting the myriad of views – our sense is – let’s see how this plays out over the coming weeks before making an emotional decision to upend your current allocation by moving cash or otherwise conservatively positioned assets into equities. This is assuming the portfolio is currently properly aligned to a personally tailored appropriate risk driven allocation strategy.

Admittedly, every year the S&P 500 experiences inter year "dips" with periods of under-performance and manages to recover either in the year or within a reasonable period – and the industry has endless color charts to prove it! 

Clearly every investors’ personal situation is dramatically different from another investors – investment time horizon, risk tolerance, age, income levels, market experience, cash savings level, etc. (I think I’ve covered enough of scenarios needed to satisfy the “everyone needs to make decisions based on their circumstances and geared in their best interests, etc.” disclosures needed for compliance purposes…)

As an overview - currently the markets and economy are reacting to the following:

  • Federal Reserve Activity - the Fed is very much in a tightening mode which has implications on economic growth and credit expansion going forward. 
  • Geopolitical Pressures - the Trade War has continued to remain a front-page issue and will potentially have real implications on US companies and future earnings if their cost of goods rises exponentially.
  • Oil Prices – continue to increase albeit quietly – but increasing they are!
  • Global Growth diversion – Growth in Developed European / International markets have remained disappointing this year, Emerging markets even more so. China is somewhat of an enigma – but to the extent we are able to decipher their reports – their economy is slowing.
  • US market – the sustainability of US Growth is now coming under some question – Institutional investors are not throwing in the towel – but are keeping a closer eye on some recent trends.

Given the above coupled with the upcoming National election in a few weeks, our thinking at Piedmont Wealth Advisory is – if you were allocated commensurate with your risk tolerance going into September and October – stay the course. For those “under allocated” to equities take your time increasing your exposure and use a staggered approach over a series of weeks.

In Summary – take a deep breath – let the markets work thru the current “noise” -stick to your established risk tolerance and avoid the urge to dive into some of the 2018 “Rocket-ship Stocks*” experiencing price pullbacks - they may actually NOT be on sale!

At Piedmont Wealth Advisory – we continually urge investors to commit to “Process and Patience”!

* Rocketship Stock is a Birnie term used to describe a stock whose price has skyrocketed during the year prompting investors to ask – “why don’t we own or own more of this”?

PS – With the Red Sox heading into Los Angeles with a 2-0 lead in the World Series, there are plenty of smiles in the Birnie household! 

As a reminder - please look to us for a trusted confidential second opinion on your current portfolio or financial plan!

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Thank you for your confidence and trust,

Douglas Birnie
Managing Director