What were you doing on Christmas Eve 2018? Hopefully, you were with family and focused on the Christmas holiday. However, if you are an investor, you may have been glued to the TV until the markets closed at noon.
That Christmas Eve was the day the markets went down significantly. During the middle of the day they dropped as much as 20 percent from the peak back in September, this marked a bear market.
We were celebrating Christmas, one of the happiest times of all, and yet the media outlets had us concerned about government slowdowns, the trade wars in China, and things that had nothing to do with a Christmas celebration. In the midst of all that noise, the markets were dropping.
How many times do news apps and television send you negative messages? As an investor, it can be completely distracting and can keep you from focusing on your long-term goals. I would have you consider that likely most of the things you are worried about are beyond your control and actually have little influence over your investing outcomes. There are three perspective shifts that can make you a better long‑term investor.
First, realize that you don’t own governments. Most of the things you worry about are things governments are doing. You own great companies. The great companies in America and around the world work around the madness of government. That’s their job.
When there are tariffs in China, they look at adjusting their prices. If the economy slows down, businesses adjust how they employ people or how they spend money internally. Those things may affect the consumer somewhat, but your biggest concern is that of an investor.
Making adjustments is what good businesses do, and long‑term, those adjustments will pay off for investors.
Second, realize that most economists are just guessing. They don’t know what’s going to happen. I would encourage you to think of them like a weather reporter.
Notice that it’s rarely the same economist whose outlook is shared in a news article or on TV. It’s usually the person who was correct the last time, but that doesn’t mean they will be correct this time.
My favorite comment ever made about economists was by John Galbraith. He was in the Kennedy Administration. He is quoted as saying, “The only function of economic forecasting is to make astrology look respectable.”
Third, realize that the more dramatic the event, the less likely you will see it coming. As investors, more than anything, what we want is a sense of control. Unfortunately, things that happen in the investment market to cause temporary losses, especially the more severe ones, are typically things that no one saw coming.
Think of September 11. No one could have predicted that was going to happen. The markets were closed for a couple days, and it caused a temporary drop. Still, over time, things recovered.
There have been other terrorist events around the globe that have caused markets to enter temporary declines. Even most financial crises are seen by very few people before they happen. They certainly have ripple effects throughout the economy and can take a few years to recover when it hits bottom, however, so far, every drop in the market has eventually recovered (and usually far faster than most investors realize).
Overall, the investing markets are not predictable over the short term. Believing that you can control something as volatile as these daily movements doesn’t appear to be possible. Investing can be emotional, but it doesn’t have to be. Knowing the things that truly affect your outcomes, and those that don’t will go a long way in helping you focus on the right things.
The more you understand the truth and tune out the noise, the better investor you will be. Our objective at Paradiem is to create better investors and put the odds of success in your favor. If you want help silencing this noise, give us a call at (985) 727-0770 or email [email protected], and let’s have a conversation.