Oh My – Are We in a Sideways Market?

by Rick Sutherland, CLU, CFP, FDS, R.F.P

There has been some speculation that we are in the midst of a long-term sideways market, and have been since 2000. All you have to do is Google the chart of major stock indexes from around the world and you will see that most are flat to negative. The same is true for many individual equities.

We are all familiar with bull markets, long periods of rising equity prices, and bear markets, long periods of declining equity prices. A sideways market is a long period of flat equity prices. It is difficult to make money investing in equities during sideways markets.

Vitality Katsenelson explains the concept in his book “The Little Book of Sideways Markets.” He talks about bull, bear and sideways markets, and the environment that is present for each to occur. He also talks about the wild card in the mix, human emotion.

Human emotion is probably the most influential factor that affects the direction of the market. No one knows when we have reached the top or the bottom of the market. But one thing is certain: it becomes really easy to make a decision to sell at the bottom of the market and to hold at the top. Emotion takes over, although it is precisely at these points in time that you should be doing the exact opposite.

Human emotion is one of the main reasons we have bull and bear markets. When markets rise from low points at the end of a bear market and become reasonably priced, the emotion of greed takes over and drives the market even higher. Sometimes so high it becomes ridiculous. The same holds true in declining markets. Markets fall from these ridiculous heights to more reasonable levels, and then continue to fall because the fear emotion dictates that prices will continue to fall. And they do fall to ridiculous lows.

So how can you make money in a sideways market? You, yourself, or the professionals you hire on your behalf, must become more actively engaged in the investment process. Don’t allow emotion to dictate your buy and sell decisions. Buy your equities when they are cheap, below fair market value. Then sell when the price rises to fair value.

There is money to be made during sideways markets; however, emotion must be removed from the equation. If you are not able to remove your emotion from your investment decisions, then it becomes very important to hire a professional. Look for someone who is disciplined and has an investment strategy that matches your goals. Understand what they own and why they own it. Only then will you be empowered to ride the waves of a sideways market and make some money.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

This entry was posted in financial goals, financial planning, investing. Bookmark the permalink.

Comments are closed.