Bloomberg headline: Two Years of Market Swagger Go Missing in a Week of Stock Upheaval
Recently, gloomy headlines have taken to note that stocks have moved in larger ranges than has been accustomed these past months.
Not surprising really. When we get comfortable, change is sure to follow. Night follows day. There is a rhythm to things, and like all complex organisms, the world according to market prices has its rhythms.
Who will be your (investment) composer?
From Bloomberg: “While the S&P 500 lost 1.2% over the week, the pain was acute in the speculative space; companies that just went public, or that trade at nosebleed valuations – or both.
They had all been thriving under Fed largesse. Now facing a relatively hawkish Powell for the first time in three years, these once-coveted stocks are suddenly out of favour with their valuations getting harder to justify.”
Good news is uninteresting. Bad news, on the other hand is eye-catching, and for the past 18 months doomsayers have been calling into question the steady advance of stocks.
The hallmark of a durable advance is skeptics. That skeptics will be right eventually is to acknowledge that a stopped clock is right 2x per day.
That is the certainty of a clock, but it’s a bad way to invest, much less tell the time.
And that’s the point of this note; headlines relevance to the prospects of the companies you own are usually low correlation events.
Are you your own composer?
Very smart people, from the very beginning of this pandemic, and frankly since 2007, have advocated caution, all the while stock valuations advanced.
Very reasonable arguments, and every single word of caution has been very bad advice.What they get wrong, is that it’s about your investing time frame, not their deadline for today’s news.
Headlines know nothing of your time frame, your objectives or the skill with which you choose to handle your savings.
And yet, the biggest news organizations in the world continue to broadcast stormy music. That is their business model (Breaking News!) and it vies for your attention.
So, with volatility recently picking up, indices dancing just 2% below their all-time highs, it is little surprise to hear the bear’s growl. “PROTECT WHAT YOU HAVE! DARKNESS MAY COME. RUN FOR THE HILLS!”
Basically; “keep what you have.”
Ok, for how long? What next?
Bloomberg’s Lu continued to report, uncaring of the alarm he may cause you; “with the Fed meeting about two weeks away and the uncertainty around Omicron, liquidity will likely be challenging.
This doesn’t make for a great backdrop for equity risk,” said Mike Lewis, head of U.S. equity cash trading at Barclays Plc. “People just want to get through December. Nobody wants to ruin their year in the remaining few days down the homestretch.”
The Government loves this stuff. Sell today! Pay tax! Ka Ching! Oh, and that trader who works for the bank, he likes it too. Ka Ching! They both get paid every time you buy and sell.
The government and traders get rich no matter if the headlines are right or wrong. The reporter is happy too. You can almost hear the above broker say, “Sell! Buy! Good Luck! Rinse repeat.
For gosh sakes!! DO SOMETHING!!! My bonus…” and the reporter will report that too.
You are the composer
If we had possessed a vaccine at the start of this year that promised 12% returns, we are confident that few would have rejected getting the shot.
With markets up 20%+, disappointment to end the year at 12% would be defined as anchoring. For example, the trader quoted above doesn’t want to see his investment fall before the end of the year.
What is so important about the end of the year? He just wants to go on holiday. What does he propose you do with your money after the turkey has been eaten?
Basically, he is saying sell stocks, because it’s the end of the year. How could that possibly be newsworthy financial advice!? It certainly does not serve any insight for what you should do.
Anchoring is a fancy behavioural term to describe an irrational bias towards an arbitrary benchmark.
In the investing world, anchoring can be when you equate success to a point in time and the value of an investment compared to the past.
It’s an Investment 101 bad idea. It is one of the biggest sins of investing, because its done all the time. It is hard to kick this habit.
The professional trader quoted above just admitted to anchoring of investment results to a date in time three weeks away. He fears his portfolio could be worth less then than now.
He favours loss aversion (short-term certainty) over the unknown rewards of the future. His mistake is, he values an arbitrary value, given today, that has no real meaning once that point in time has passed.
It is foolish advice. It’s a silly headline. What informative advice does it hold for you?
There are more headlines than good companies.
We are all fed up with the stress of the past few years. We just want IT over, and yet we also know it’s not.
With our wealth trending positively, it is little wonder that an aversion to seeing a decrease in value from this “high water mark” pops into the narrative of the press.
This time of the year is a classic time to be bombarded with forecasts and warnings of what is to come. Ignore it.
This time of the year is no more likely to generate good short-term thinking than any other week of the year.
The companies you own continue to chug along irrespective of the gloom and the forecasts for the market. They are coping well.
Heading into year-end, we encourage you to avoid racing against these kinds of societally placed and time-sensitive markers of performance and success, these are false finish lines.
Successful investing is a continuum of discipline. Everything else is just noisy narratives.