Every correction in the stock or bond market unfolds in a different manner.  While our natural inclination is to try and make comparisons to prior events or rationalize statistical probabilities for a turn, there is no easy way to know when an investable bottom has truly materialized.

From a valuation perspective, cheap can always get cheaper until it goes to zero.  Similarly, from a technical perspective, lines of support can always be broken by new trends or forces that materialize in the midst of a decline.   

In recent years, it has become commonplace for sharp rallies or “V-bottoms” to form with very little notice to those who aren’t quick on the trigger.   These are generally caused by capitulation near the low as sentiment reaches extreme negative readings.  This fear ultimately leads to a snapback in price as an unforeseen catalyst sparks a rubber band effect.

The problem is that it isn’t easy to time these events.

Let me give you an example.  Last year I wrote about the downtrend in junk bonds as risk averse investors were jumping ship at a breakneck pace.  I prophesized that I would be a buyer of high yield in 2016 for my clients to take advantage of the widening spreads and relative valuation metrics.

That type of premise looks prescient when you are sitting on the sidelines watching the iShares iBoxx High Yield Corporate Bond ETF (HYG) crater with cash to deploy.

However, it becomes much more difficult to execute in real life prior to a sharp 10% rally that unfolds in a matter of just three weeks.  I fully admit that we missed this opportunity.  It may have been the result of being overly cautious or simply remaining skeptical that such a voracious move could materialize so quickly.

Fortunately, we still have other risk assets in the portfolio that are able to meaningfully contribute to this recovery in the stock and credit markets.  The conservative nature of our investment mandate dictates that I would rather look back with regret on a potential missed opportunity than suffer the consequences of an overly aggressive stab in the dark.  We only know in hindsight how this picture unfolded and of course have yet to determine what the ultimate resolution will be.