“It’s a hard way to find out … that trouble is real …” from “Hickory Wind” as recorded by The Byrds
A character’s movie arc is how an actor changes and evolves during a film. The most common arc is one that features a character who rises quickly to the top, takes a tumble, then slowly regains stature, until he eventually reaches his zenith as credits roll. Or at least finishes the film in a better position than when he started.
Boxing is the last sport I’d ever watch, either televised or in person. But minus the pugilism, I love the movie “Cinderella Man.” Released in 2005, starring Russell Crowe, Renee Zellweger and Paul Giamatti, and directed by Ron Howard, the film depicts the incredible true story of boxer James J. Braddock.
Professionally successful and personally wealthy, Braddock loses his life savings and home during the Great Depression. Then a series of bad breaks, including a broken hand, render him completely penniless. Braddock accepts government relief and at one low juncture, appears hat in hand to the boxing commission to ask for a handout. The reason? He needs $37 to get the lights and heat turned back on in the family’s one-room, cold water flat in New Jersey. Eventually Braddock’s hand heals, and the “Popular Battler” claws his way back, regains the heavyweight title, and rebuilds his family’s personal balance sheet.
Market movements, like the arcs of our favorite film figures, do not trend upward without interruption. Sometimes markets are hit with a roundhouse right and temporarily stumble. And this is a good thing. Markets which trend upward continually without ceasing beget securities which become overvalued. Then these same markets are indeed more vulnerable to a drastic correction.
Markets tumbled on July 31, when the S&P 500 lost just under 2 percent in one day. Several factors converged: wage increases, the Argentine default controversy, and a 4 percent second quarter growth report (that’s a good thing, of course, but may indicate that the Federal Reserve will end its artificial stimulation sooner than expected; thus, the negative impacts on markets). Wage increases are certainly also good news for wage earners, but may foretell pressure to raise interest rates to offset potential inflation. So again, that was perceived as a negative for markets.
A report in the Wall Street Journal stated recently that market downturns have served as a buying opportunity for long-term investors, but that many short term investors were selling.
These market dips also remind us that like the arc of our favorite movie characters, investments do not continually increase in value unabated; that the most important thing is to be in a better place when you finish your investing process than you were at the beginning. Just like Jimmy Braddock.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.