A perspective on this bear market and yesterday's post about 'not to buy this dip': What it means for markets to be forward looking.

Yesterday I saw a popular post on this subreddit called "Do NOT Buy The Dip". This post begged us not to buy this dip and gave us examples of atrocious economic signs. I will explain the concept of forward-looking markets by discussing the economic signs of that post.

So what exactly does forward-looking mean? The value of almost all investments is based on future prospects. For example, in stocks, the price of a stock is often a multitude of the profits that a company is actually making. Stocks that people think will prosper in the future, take growth stocks like AMD/TESLA, have traded at over 100 times their actual earnings. For crypto, which is especially speculative and based on future evolution of the technology, the price reflects the amount of trust people have in the future of the technology.

If your goal is to periodically invest and build a long-term portfolio, the perspectives below on the current economic problems could help to clear your mind.

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1. Expensive energy in Europe means volume will leave the market.
   I am European, the high energy bills are definitely a pain in the ass for us. This however does not necessarily mean that a lot of European money will exit the markets. It is known to everyone here that we are facing a costly winter, in fact, we are already paying for it. Energy companies make sure that monthly energy bills are adjusted upfront to prevent people from getting unexpected extreme high energy bills in December. Besides this, the share of retail investors that would actually have to liquidate their investments in order to stay afloat is a minor share of the total volume.

2. Fed is still fighting high inflation.
   The key here is: "Is it getting worse, or have we seen the worst of it?". There were signs that we could have seen the worst of it, and while you never see an instant effect of inflation, this could change the prospects of let's say, the next year or two, in a positive way. What also helps is that tapering (while also not having an instant effect) is now in effect, and going to help reduce inflation over time, as we print less.

3. High unemployment numbers precede a recession.
   If you are going to take low unemployment numbers as a predictor of a recession (and therefore as a reason to stop investing), you are making quite a few assumptions here:

   1. We are not in a recession yet, and markets will crash even more.
   2. We are at the bottom of the 'low unemployment phase' and we will transition into high unemployment soon.
   3. Low unemployment is an actual predictor of recession.

Unemployment Rates Graph

If you look at the graph above from yesterday's post, we see that it is incredibly difficult to
locate the exact bottom based on earlier bottoms. We are well below the previous 2008
bottom for five years now, and the 2008 bottom was higher than the 1999 one.

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The market has fallen a lot in the period December 2021 - July 2022. During this period a lot of companies were still seeing record quarterly numbers, so purely based on these numbers a crash seemed unwarranted. However, bad economic signs were there and this shows we as a whole value these signs accordingly, based on future prospects and not current profits. Unless you know something that the rest of the world does not do, I'd suggest not to skip periodically investing during economic down periods. As an example, the chart below shows what happens if you e.g., miss out on the 10 best days during a period of 20 years, trying to time the market.

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https://preview.redd.it/ob9k6nepy1j91.png?1833&format=png&auto=webp&s=6347f7acb19536f8b46b881387b819fa145829a2