In response to several calls I've received regarding Evergrande I thought I'd get you up to date about what you can do in response. Turns out this real-estate behemoth is into electric cars and Fairyland theme parks. First read this article, which gives a great overview of who Evergrande is and why they are such a significant global company. Source: click here.
Once you have a handle on the back story, allow me to share my best advice on the critical action steps you should take next. You may want to write this down.
Stick to your financial plan.
That's it, follow me on Twitter and Facebook for more financial planning hacks.
Okay, I get it, you deserve more of an explanation. If you have a financial plan, an investment strategy and a durable retirement income plan, then you've already accounted for Evergrande. None of your planning is based on a news story or forward price-to-earnings ratios. Instead, you have a Stability Plan that is ready for another Lehman Brothers meltdown, tech stock boom, tech stock bust, Long Term Capital blowup and pandemic roller coaster.
If you're a client you already know what I'm going to say. You're plan should be diversified for liquidity, personal debt reduction and elimination, income undeterred by market volatility and growth based upon rules and mechanical adjustments for risk. If you don't have that, call me. If you want to be reminded of what you have, call me.
Furthermore, stories like Evergrande are not reliable decision-making tools. We won't know if Evergrande is the next Lehman brothers until 5 months or 5 years after the fact. Don't get me wrong, it may well be the next Black Swan we've talked about. But you'll drive yourself crazy making major financial decisions based upon the headlines in the Wall Street Journal.
For instance, in 2017 the news of the day said we had a terrible President antagonizing a nuclear power in North Korea. Actual missiles were fired over Japan and World War 3 was on the horizon. How did the stock market respond? With the least volatile climb up the wall of worry in recent memory.
Again, in 2020, we had a once in a lifetime (let's hope) pandemic unleashed upon the world. Lockdowns and shutdowns caused major financial disruption. Oil and gas prices plummeted as did major stock indexes around the world. The new normal was a lock. Until it wasn't. The stock market and some world economies decided the end of the world would be postponed until further notice.
All that matters is price. All the news is just the story we tell ourselves and has little to no predictive value. We remain alert, diligent, and perpetually nervous. But our financial plan is simple enough to understand and strong enough to account for the next Black Swan. Specifically, we rely on technical analysis to fade the news and analyze the price trends.
We could have a stock market crash and an economic recession in 5 days or 5 years. We could have a melt-up bull market in 33 days or for the next 33 years. And you can be ready for all the above. So keep an eye on China if you wish, but more importantly stick to your financial plan. If you would like to discuss further, click here.