Q1 Was a Great Learning Opportunity

Last night during the first hour of Asia Squawk Box, host Martin Soong had two different interviews that he lead off by saying that this was probably a quarter to forget. Both guests agreed but that may have just been for the sake of being polite.

I view this much differently. This past quarter and the one before that - really the last year or so - have provided a great learning opportunity and we will continue to learn as this current market event unfolds into whatever it ultimately becomes.

Many of the things that contributed to the rollover of the market were simply slightly different variations of what has taken the market down in past cycles: funky yield curve, various excesses and time to name a few. If you heeded these warnings, you are probably doing a little better than the market and you know first hand what to look for in future cycles. If you did not heed these warnings, then you are probably even more aware what to look for in the future.

I would say you should want to pay more attention to warning signs of a decline, the manner in which it unfolds, and the bottoming process, than how a bull market rages.

The decline this quarter really was a global phenomenon. You know the S&P 500 was down about 10% (maybe 9.5% if you add in the dividend). EEM was down a little more than SPX and EFA was down a little less. You probably also know that China was down 32%. Australia and Norway (two of my faves) were down 15% and Chile was down 5%. Brazil was down 5% while Israel was down about 20%.

This does not mean foreign investing is broken. This is a bear market. A given foreign market will go down by some amount (more or less than the US) and then start to turn up (before or after the US) as they do in every bear market cycle.

That a foreign stock or fund is down 20% is probably not the first priority. More important would be the quantity of that stock or fund that you have, or what it does to the entire portfolio and how the portfolio is doing. There are a lot of stocks that are down for no reason other than the market is down. Selling a stock in that circumstance is probably not a great idea for a long term investor. Don't confuse that with a stock that is down for plenty of reasons.

In a lot of the interviews on the various TV networks, the guest is often asked what parts of the market they favor now or are overweight. The best answer for a bear market is probably cash.