The Deathtrap of Current Events

March 07, 2017
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Today as I write this blog, on March 1, 2017, the S&P 500 Index closed at 2,395.96.  What a difference in those scary days of the first six weeks of 2016.The stock market opened down on the first day of last year, and went pretty much straight down for the next six weeks. 

At the end of the first week, financial journalism shrieked that it had been the worst first week in stock market history, which was both narrowly accurate and largely meaningless. 

At the end of the month, the media celebrated “the worst first month in history” – something about the China economy and the price of crude oil going down.  (I thought lower priced oil would save families money, but the market worried about lower earnings from energy market sector).

 And then, on February 11, 2016, the market closed---let me give this the proper journalistic emphasis---THE WORST FIRST SIX WEEKS IN THE HISTORY OF THE WORLD, SINCE THE BEGINNING OF TIME! 

For the record—and you’ll want to note this, because we’ll be referring back to it---the S&P 500 closed on February 11, 2016 at 1,829. 

Then, for purposes of this discussion, came Brexit.  All the elites of the world  (including the incumbent U.S. president) shouted through their megaphone---mainstream journalism---that were the people of the United Kingdom to vote to leave the European Union, global economic disaster, centered in the UK but spreading across the entire world, would surely ensue.  Perversely, Britons voted to do just that.  In horror, the S&P 500 closed the first day after this stunning news broke at 2,037. 

Then (for the purposes of this story), came the U.S. presidential election.  Mainstream media almost universally forecasted that the election of Donald Trump would usher in the end of all economic life on the planet as we have known it.  But in the next breath, they told us not to worry, because---depending on which media organ was your news source of choice---the probability of Mrs. Clinton’s election victory was between 77% and 99.9% (we aren’t making this up). 

The day after Mr. Trump’s election, the S&P 500 closed at 2,163, and as I write this blog, on March 1, 2017, the S&P 500 closed at 2, 395.96, a 30% gain from last year’s bottom.  Raise your hand if you’re seeing a pattern here.  Yes, I see it too.  But since there are a number of potentially valid conclusions that might be drawn from the facts we have just reviewed, I want to make sure you and I focus on the same one.

 Historical Market Fact 

Going back through modern market history (from 1927), the broad market in the United States has experienced an average annual peak-to-trough pullback of 14%.  As a long-term investor, market volatility is your friend. 

Summary 

One of several conclusions, I suppose, would be that the mainstream media: (1) Are relentlessly biased to the negative, (2) Have a very specific and uniform agenda when it comes to matters of geopolitics, and (3) Always get it wrong.  Another conclusion, in the words of Peter Lynch, “The real key to making money in stocks is not to get scared out of them.”  All true, but my point, specifically directed to you, as our clients, or prospective clients or our friends, is simply this: never make a long-term investment decision based on current events.  Stated as a positive: long-term investment policy must always be based on a plan, long term goals and market history, and never from headlines. 

The logical sequence of variables in all successful lifetime investing is: financial goals first; then work towards reaching those goals in the time you have; then and only then have a portfolio whose long-term historical records would, if continued, give you a high probability of reaching your goals. 

You will not have failed to notice that significantly altering your portfolio in response to near-term economic or political phenomena—much less fleeing it altogether when panic seizes the markets---appears nowhere in that sequence.  And I devoutly hope---that as your advisor---you take this to heart. 

Because I can tell you that, after nearly 40 years of dealing with markets and investors: Every successful investor I have known was acting continuously on a plan.  And every failed investor I’ve ever known was reacting continuously to current events. 

Conclusion 

If I may, I’d like suggest that you discuss this with us at any time, by phone, visit or at a review meeting.  Because in a sense, there isn’t a moment to lose: as tomorrow could, at any time, bring another scary headline.  Our mission is to keep you on your path towards your long-term goals, by monitoring your progress, making any adjustments as needed and helping you realize your goals and dreams.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk, including the risk of loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
 

Blog No. 112 – The Deathtrap of Current Events 

Sources: Nick Murray Interactive, LPL Financial and S&P 500 Index. 

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