Who knew?
GameStop at $400 a share makes no sense if
you’re a long-term investor. But if you’re a day trader betting it will
go to $401 in the next hour, it might. A lot of financial debates don’t
reflect people actually disagreeing with each other, but people playing
different games talking over each other.
Morgan Housel
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
John Templeton
“Successful investing is highly counter-intuitive. The best thing to do is often the thing you don’t want to do.”
Jim Cosgrove
The financial services industry works very hard to offer you illusions of safety and certainty. They know that’s what you want.
By
now you should know that safety and certainty come at a steep price.
Yet, the reality is, there are only two personal finance games: One is
to accumulate assets. The other is to wisely use or sustain them. That’s
it. Period.
So, the first thing to know is, which of those two
games are you playing? Chances are, if you’re working for income, you’re
accumulating. If you’re beyond that, then you’re using or sustaining.
It’s one or the other. You can only have one major.
The
next thing is harder: no one knows the future. No one. I’ve lived
two-thirds of my adult life in the 20th century, and one-third in the
21st. I’ve heard about the imminent collapse of one thing or another and
the coming ultimate collapse of everything quite a few times. Hm. We’re
still here.
This is not to say bad things have not happened. Like an air raid in Hawaii. An assassination in Dallas. A union of soviets dissolved. Terrorist attacks in New York. A pandemic. An insurrection. Just one unforecasted thing after another. The short run always seems to be a mess. We’re still here.
The third thing is that even though the events look different, human emotions and behaviors are entirely predictable. We are all subject to manias and panics, fear and greed, envy and schadenfreude. On top of that, we have dozens of biases that undermine our best intentions. In this regard, nothing is ever different. Human emotions are here to stay.
It shouldn’t surprise you then that, on average, the stock market rises on 54% of the days and falls on 46% of days. The stock market also spends more time in corrections, downturns, and crashes than it does advancing. But here’s the counterintuitive part. Almost all 10-year rolling returns are positive:
So, where does all this leave us?
1. Ignore the chatter about whatever economic disaster is sure to happen. No one really knows anything, and everyone is certain they do. Risk is what we don’t see but claim to have seen coming once it arrives.
2. Just look around and notice how people are behaving. Yogi Berra wisely noted that “You can see a lot by just observing.” Are people being fearful? Greedy? What’s your emotional state?
Here are the key take-aways:
- Diversification amongst the major asset classes will keep you in the game no matter what. Cryptocurrencies, NFTs, SPACs, and so on are not major asset classes.
- A simple, disciplined asset allocation policy will keep you sane and tether your emotional impulses.
- The short-term is always troubling. But things work out in the long-run. Optimism is the best long-term mindset. YOLO can be a compelling reason not to do something.
Selling illusions of safety and certainty is not what we do. Our practice takes us from possibility, to plausibility, to probability. Let’s talk.
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315
👉 Tip(s) of the Month: Defeating Covid Induced Clutter.
Coronavirus Anxiety Scale
https://www.mdcalc.com/coronavirus-anxiety-scale-cas
Defeating Covid Induced Clutter
Decluttering During Covid
