Monday February 5th Selloff

February 6, 2018

Thoughts on the Plunge

As long-term-oriented investors, we have learned to ride through the inevitable bouts of volatility, secure in the belief that stocks will reward our patience in sticking with them through thick and thin. Such has been the case throughout our four decades of publishing The Prudent Speculator and since the dawn of the equity markets, and we no reason why the current downturn will be any different.

That is not to suggest that the latest round of selling is anywhere near complete, especially as the equity futures for Tuesday’s trading in the U.S. were down sharply again, following big plunges in Asia and Europe. Of course, at the risk of downplaying the severity of the skid, the magnitude of the decline has “only” been slightly less than 8% on the S&P 500, which as of Monday’s close was off 0.80% for 2018. Market history shows that drops of more than 7.5% are very much normal, having occurred on average every 0.6 years…

…so what we have endured over the past week is hardly unusual in scope. That said, we do recognize that the speed of the fall, including Monday’s carnage, is not exactly par for the course, even as the Dow had two worse days in 2011 than what was seen yesterday.

Obviously, volatility like we have been witnessing can try the nerves of even the hardiest investor, but we continue to think that healthier economic data, growing corporate profits and still-low interest rates are strong pillars in support of stocks. And, with the pullback, equity valuations have become less expensive, while the “flight to quality” yesterday actually saw interest rates come back down.

Certainly, we are braced for more near-term downside, but we never forget the timeless words of wisdom of legendary Value investor Warren Buffett: “Of course, the immediate future is uncertain; America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor.

The old adage is that Wall Street is the only place that holds a sale and nobody wants to buy, but we think long-term-oriented folk should not hesitate to commit some of their money that has been sitting on the sidelines, and we offer 25 bargain Prudent Speculator purchase candidates.

Stock Picks

How can AFAM Capital help?

We know that many people have been waiting for a pullback to consider our services, and we hope our perspective provided in this week’s commentary for The Prudent Speculator newsletter resonates. We have been around for over forty years and have experience navigating just about every market environment. If you are interested in learning more about our private managed accounts, please give us a call at 512.354.7041 or e-mail us at


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