Headlines and Investing

Posted by on Mar 17, 2014

Just a week or so ago, even though the market had just been at record highs, it was looking a little tired. After the recent run-up, that seemed pretty logical.

And then, this past Thursday, there was a report of lower-than-expected industrial production data from China, together with them said to be making significant cuts in some business lending. To some, this combination suggested that China’s growth would be slowing further. The S&P500 was moving higher after some good US economic news and had just come “this close” to another new record high when the China news came out. So that caused the market to become a little unsettled.

However, later in the session, the deterioration of the situation with Ukraine and Russia was first reported. Once that happened, things moved lower fairly rapidly. End of the day had us dropping 231 Dow points. (1) By the way, Friday was pretty quiet in the stock markets and, on neither day did the doom-and-gloom indicator, aka, gold, see any large moves.

Think of it this way

That Dow loss sounds like a lot, but it’s not. That move only represented a 1.4% drop. We had a loss of 1.2% for the S&P. (2) Nonetheless, the Ghost of Markets Past still haunts a number of investors. Quick, sharp moves such as this was can often cause them to act against their own benefit…especially when they occur closely together.

Here’s a problem, from my view. Over the last 30 years, or so, the term “volatility” has come to equate with bad things only. Yes, volatility is one of the many types of investment risk. However, in my entire experience, no one has ever complained to me when volatility caused asset values to go up…

If you’re a trader, market volatility is what you do. To (profitably) anticipate the daily flips and bumps…that’s your main goal. Not so for the investors. Allocating your assets to help cushion you from near-term market jumps, while also growing and protecting your assets at a rate you need to meet your goals, is what you do. So, daily headlines should be dinner table conversations – not a reason to mess with your financial life.

That’s been hard to do. Over the last six years, there seems to have some sort of nationwide – maybe even worldwide – contest to see who could talk the loudest and longest about markets and economies collapsing. The media pundits who can’t wait to remind you how bad everything “really” was and, of course, still is. (It’s all hidden just below the surface, you see…if you’d just buy my book; take my class, etc.) They’re always focusing on the “next big market challenge.” The five year old bull has quieted them down a bit but, a day like last Thursday brings them right out again, like pesky mosquitos after a rain. And about as welcome, too.

Jack Bogle speaks

That’s as in, Jack Bogle, the founder of The Vanguard Group. He’s been pretty successful in the investing world. He had some comments in an interview this past week that I think any investor can benefit from. He happened to be talking about how the market was seemingly more volatile and folks were getting a little concerned.

He said that “stock markets move in fits and starts,” and the fundamentals underneath (US) stocks are solid. He added that, “What does not move in fits and starts is what the stock market enables you to do, which is own corporate America. Timing market entries and exits is a fool’s errand.” In that light, Charles Schwab said a couple weeks ago that timing the market was simply gambling on a point in time. Smart guys, to be sure.

What to do?

Next time the markets are down 10 or 15 percent or so, (it’s just kinda like noise until then) and they’re starting to make you feel like you want to mainline the Maalox, do this first. Find a comfortable spot and consider things like the following.

I want to acknowledge that it’s unsettling, to be sure as it’s not just the markets that are usually not humming along when we have corrections like these. Regardless of what the markets may be doing daily, are you still going to retire? Do you have other long-term needs and goals that don’t have to be met – right / this / minute?

Looking at things objectively, other than prices, what may have changed with our investments? Are the companies you own still making the same “stuff” or providing the same services? Unless there’s a basic, fundamental reason to close a position in a stock, bond or fund, why get out? By the way, price changes aren’t fundamental reasons by themselves.

Remember those Dalbar studies showing the big difference between what either the average stock fund or bond fund has done and what most investors have actually made? The negative difference is almost always entirely due to the behavior of the owners of those funds – not the fund managers and not the market either.

So, what to do? Easy.

Own quality. Stay in quality and keep telling yourself that headlines are for reading and commenting – not investing…




(1) CNBC, 13 Mar 2014

(2) Bloomberg, 14 Mar 2014

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