Summer’s winding down, and the media’s back out in full force. During summer, most people turn off the TV, go outside, do whatever they do and get reduced exposure to the media.
Now that fall is approaching, I believe that all these people will be lured back by the media, whether it’s Social media or whatever people consume, which can be a big part of their lives. The media is, of course, trying to keep everybody engaged, and so what people are talking about is this inevitable recession. Is it time to start worrying now about stocks?
Michael Burry of the movie The Big Short says the market is going down. The media loves to bring out the people who are gloom and doomers. We get calls from clients talking about that. It’s obvious to me why people are nervous. It’s not because of anything that’s happening or not happening, it’s just the media gets in their collective psyches.
And loss aversion is more powerful than the prospect of future gains. Now that people are coming out of their summer of fun, they’re starting to worry again. We tell them, which people do forget, is that for every seller, there’s a buyer. So, even though these prognosticators say the market’s going down, there are literally 10,000 prognosticators who say that all the time. Sometimes someone will be right. They will get some fame or notoriety and make some money. But they are just that. The prognostication business is its own business.
It’s inexpensive to get somebody to follow you. If you’re right, you’re set for life. If not, no real cost. So, we don’t blame people for doing it, but we would say people should not act upon online prognosticators. If they knew the future, they would not share that valuable information. But of course, nobody has a crystal ball (unless it’s broken). The uncertainty of the market prices is why equity investors have received positive rates of return over long periods of time. The compounding of returns over time is what we are aiming for — not trying to outguess short-term market movements.
What we want to tell people is to listen, and remember that for every seller, there’s a buyer — there are no orphaned stocks. What moves the market is future unknown news. Yes, there’s always news that, in hindsight, looks like we all knew it, but that’s confirmation bias. We didn’t know it. Again, it’s a super, super, super competitive marketplace, and billions of dollars trade every day across the globe, hundreds of billions. You’re better off trusting market prices than trying to outguess the market.
Peter Lynch was Fidelity Magellan Fund in the 1980s. He’s always said, “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
Optimism is a good attribute to be a successful investor. The optimist knows there’s always going to be a storm, and you cannot avoid a storm. But knowing that markets work and trusting financial science is the key to enduring the inevitable storm. The alternative is to basically live with the pessimists who are not usually invested and don’t get the markets’ returns, but that’s okay. There’s nothing wrong with either one as long as you know what you’re doing.
Jeff Holland | VIAIV