It has been a good start to the year in equity market terms. Stocks were rallying off their lows in December and the Vix has come back down to around 20. There is a lot of talk around what happens in January spells out the year. In reality the longer term prospects will determine how 2019 will end. This week we have seen growth prospects for countries downgraded in the EU, where even Germany is not spared. The World Bank has came out downgrading global growth, with the decline led by the advanced economies. The causes of these lower estimates are not new (slowing trade, less commodity demand, removal of central bank stimulus) but they were something the market seemed to ignore, at least in the US last year. The declines we have seen in the markets have caused participants to take these changes into account in finding the right balance of long term economic prospects and market levels.
Over the past 2 months there are many people who no doubt questioned being in the markets during such a violent downturn, and are not questioning why they are not more invested into the markets now. Small gains do make for longer term returns but trying to time the markets in such an extreme fashion is difficult. Creating a longer term outlook and using that as a guiding principal of when to add or take away from exposures in the market is where the individual gains an advantage. Looking at the data it is a good time to build a story around different asset classes, sectors, and regions to invest in. Find the conditions that make sense to buy into (or sell out of) a position in the longer term, and execute.
Sometimes the market seems to be dislocated from the theory that you laid out. This is a great way to know where you need more research and testing. Perhaps change the amount allocated. This could help avoid mistakes in the long run, or find great opportunities where the market is thinking too short term.