Friday the 4th of November marked the longest stretch of declines (9 straight sessions) in the US stock market since 1980. Scary right? Sure. What followed was a steady stream of gloomy predictions by market “experts”. Not surprisingly however, here’s what happened subsequently:
Source: Thomson Reuters Eikon
The market climbed 5% within days. Now that would have been poor timing.
You used to be able to make forecasts and predictions and get away with it. People wouldn’t remember them all. You’d then only market the ones you got right. Absolute genius.
Today however, it’s a different story. People don’t need to have a good memory. Google does that for us. The more investors I speak to, the more it’s becoming evident to me that people are learning to ignore these charlatans.
I mean, the latest US presidential election was a prime example. I’m not going to go into detail as we all know what happened. What I will share with you however, is how quickly headlines change.
The immediate reaction of financial markets forced these experts to change their tune. Price changes sentiment, and it does so very quickly. This was not only a Citigroup thing, it was all the so called experts.
Can you imagine the destruction of wealth that would occur as a result of taking this free advice? You pay for what you get right?
As difficult as it may seem, it’s important to take the long view. What we’re seeing today, and what we’ve seen in the past is a mere blip over the long-term.
Kieron Nutbrown, former head of global macro fixed income at First State Investments in London, put together what I think is a brilliant piece of work and just the reminder to help investors take a few steps back and take a look at markets through a much wider lens.
His chart follows the path of global stocks over the past 500 years and demonstrates how prices have fared through wars, revolutions and depressions.
The chart provides a great visualization of the ups and downs of market sentiment. The greed, the fear, and the actions that follow. What does this chart tell us about the future? Not much. But I’m sure you’ll have experts who’s job it is to make daily predictions construct a compelling story. What it tells me is that the stock market has handsomely rewarded long-term investors.
Despite all the evidence pointing to peoples inability to accurately and consistently predict the future, we’ll continue to see what was traditional practice continue.
There is nothing wrong with admitting you don’t know what the future holds. But this should not and will not stop you from making good decisions.
For those that are wondering what’s up with the featured image of this post, let me explain. The image and detail was borrowed from Index Fund Advisers, a US based wealth management company. The scene depicts a street in Amsterdam that had erupted into a trading frenzy. At the Quinquenpoix coffee shop, overflow trading became the norm because the exchange had become too crowded with traders manically trading to gain quick wealth. At the scene’s center, a cart is being pulled by characterizations of the bubble stocks of the time, including companies like the South Sea Company, the Dutch East Indies Company, and the West Indies Company, a banking company and an insurance company. Driving the cart is Lady Insanity, while the Goddess Fortuna floats above, dropping stock certificates littered with snakes, while the devil blows bubbles in the air. Meanwhile, Lady Fame slowly, but assuredly, leads the cart to one of three destinations: the hospital, the mad house, or the poor house.
Next time your faced with making an investment decision, you can take the advice of Paul the Psychic Octopus, or you can look to evidence and logic to guide you. The choice is yours.