Stock market news was not good today.
Stories like this have been circulating like crazy.
“Stocks Plunge as a War Deepens…”
“If your pension, retirement savings or 401k is invested in the stock market, you lost big today.”
The war that I mentioned above is trade related. It does not involve tanks and bombs, but it is troubling, no doubt.
When reading headlines like this, however, try to keep this cartoon in mind.
Source: Micheal Ramirez cartoon from 2009 and more recent Ben Carlson tweet
In sending this around, I’m not suggesting that today’s issues are a small matter or that they are going to go away quickly. And, even though prognosticators are busy today, no one has a crystal ball.
What I am saying – again – is that market shocks occur much more often than many people might realize.
As an example, the second headline that I quoted above is from a post that I wrote in 2015.
To help drive this home I’m including a chart that was sent around today by Michael Batnick, who kindly gave me permission to use it. The title of a Tweet that he sent with this was spot on – “It is always something.”
Something will always create headlines that make us feel uncomfortable, but note above how they tend to not last that long.
What they do – well – is to create the emotions in the chart below over and over again.
Yes, I’ve posted this chart many times before and I’m not immune to these feelings myself. I’ve never met a human who is. It is why I have this chart on my office wall.
It’s also one of the many reasons that we work hard to Keep a Steady Hand on the Tiller and, as we just did a little over a week ago, trim equities when the market is up by a larger than normal amount (reminder – as of the previous market close the S&P500 was up over 18% for the year).
We didn’t make these moves ahead of the recent market drop because we are good at making predictions (no one is – particularly related to down markets).
We did it because we stick to investment policy plans that we have developed for clients, which create a disciplined process of taking chips off the table after strong runs.
As I wrote in the Steady Hand post that I mentioned above, our simple message remains the same.
Conditions are often out of our control and can change rapidly. Be prepared and stay broadly diversified. Don’t reach for returns.
Keep focused on your long-term plan, not the models or predictions of others, and don’t be sold the next hot investment strategy – especially when emotion is running high.
Today is bringing a market storm and, as they have many times before, market conditions might continue to generate concerning stories.
When they do (not if), try to stay anchored on the following, which is The Normal.
- Stocks are risky
- Markets experience shocks from time to time, and can produce short-term periods of low or even negative returns
- Normal markets include ups and downs, and the swings can be large when too much emotion gets involved
- No one can forecast the future, especially when emotion is involved
- Over long-term periods the stock market has consistently produced positive returns and long-term investors have been rewarded
- Long-term is 10-years or more
Every day will not be a good one in the stock market or in life.
True long-term investors, however, have been consistently rewarded with good returns that create good emotions when they stay focused on their long-term plans.
For more related posts consider reading the following: