Scary headlines resurface
1. Writers have dusted off their dictionaries and words like “sink”, “plunge”, and “selloff” have reappeared in the headlines. (Say those words out loud and notice how they make you feel. Ugh. Right?) The antidote is context. As Bob French notes in his article “Putting Monday’s Drop in Perspective,” “After the market’s close on Monday (and the not so great previous week), we’ve only given up our gains since December 8th. In other words, even after this historic plunge we’ve only given up about eight weeks of gains.”
Source: The Irrelevant Investor
Michael Batnick points out in “A Few Charts And A Few Thoughts“:
“Going back to 1926, stocks have outperformed one-month T-Bills by 8.9% a year, but this was before inflation, before fees, before index funds, and most importantly, before human behavior. In order to earn these returns, investors have to pay the piper from time to time, and I’d say the Dow falling as much as 1500 points in a single day fits the bill. Nobody knows if that was the top, but for those of us looking to capture whatever long-term returns stocks will deliver, you have to be long at the top to be long at the bottom.
More words of wisdom from Michael in “It’s Over“– “Focusing on the day-to-day is a really good way to lose sight of the long-term trends, or why you’re even investing in the first place.”
Additional Reading: “Should We Be Alarmed?” (Bob Veres, 2/5/2018) “The truth about the markets is that short, sharp pullbacks are inevitable and routine—unless you were living in the past year and a half, when we seemed to be immune from normal market behavior.”
Don’t count your money every day
- Barry Ritholtz shares a great graphic by Vishal Khandelwal on what you control as an investor.
Source: Safal Niveshak
Daniel Kahneman: “If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you’ll be miserable.”
“What You Control” (The Big Picture, 2/5/2018)
People should read more history and fewer forecasts
- This article by Morgan Housel is such a worthwhile read. Would you have guessed these results?
- Best Buy stock is up more than Amazon stock in the last five years.
- Blackberry stock is up more than Apple stock in the last four years.
- Hawaiian Airlines stock is up more than Facebook stock over the last five years.
“If you’re surprised by these numbers it’s because it’s natural to think in a way that follows the most logical path of least resistance. Here that means assuming outcomes are driven by underlying events. Apple’s products have done well. Best Buy’s services have not. The investing outcome should look the same.
What this misses – and this is as obvious as it is easy to forget – is that investing outcomes are driven not just by business results, but business results within the context of expectations. Five years ago we expected nothing from Best Buy and everything from Apple. So Best Buy gets a bigger trophy for showing up to the game than Apple gets for being MVP.”
“It’s Hard To Predict How You’ll Respond To Risk” (Collaborative Fund, 1/31/2018)
SAGE Serendipity: Soon it’s the start of the Winter Olympics! Opening Ceremonies are on Friday but competition actually begins on Thursday with a new event — Mixed Doubles Curling. Big Air is also a new event (high altitude snowboard tricks) but curling has new killer brooms! NBC has the Games and the schedule and TV listings are online here. Enjoy!