It’s been a while since we’ve yelled at those darn kids to stay off our lawn so it’s time to complain:
What was up with all the gasbags on Friday? Great Britain voted to leave the European Economic Union and with nary a thought appeared article after article proclaiming to know what it means and what you as an investor should do.
Time to burst the bubble:
- No one knows what it means.
- You shouldn’t do anything about it.
- If you disagree with #2 then you’re a speculator – not an investor.
These truths won’t get you to click a link, watch CNBC or a buy a newspaper so why tell them to you? Another truth . . . these outlets do what’s in their best interests – not yours.
It is through this lens of frustration that Apollo adds to the parade of gasbags. On one hand we’re loathe to comment on the crisis du jour (Y2K, TARP / bank bailout, Greece, etc.) while on the other not doing so leads some to think out of touch means out of mind. We just can’t win. Pity us!
OK, so here’s the deal:
On Friday global stock prices declined. The iShares Europe ETF led the way with a 10.97% decline. Money poured into perceived safe havens such as U.S. Treasuries. (Hmmm . . . what ever happened with the downgrade from AAA to AA? The debt ceiling? The possible default? Wasn’t that another crisis? Ugh.)
Why the flight from stocks to bonds? It’s simple – the need to act. In the most human of responses acting for the sake of acting makes us feel good. And, after all, isn’t the goal of investing to feel good? Ugh.
The painful truth is that while we search for certainty it can’t be found in an uncertain world. No one knows if Friday’s markets were an overreaction or the beginning of a bear market. Brexit might have minimal, short-term economic impacts or it could be the end of the EU leading to long-term, recessionary impacts.
Trying to forecast economic events and then moving in and out of markets based on those forecasts has proven time and again to be a loser’s game. The only thing more foolish is to sell after markets declined – an all too human tradition of buying high and selling low. Dressing it up as strategic decision making is an attempt to avoid admitting it’s performance chasing.
Let’s get some perspective. Over the short-run (as defined by the last 6 months) U.S. stocks (as measured by the Vanguard Total Stock Market ETF) have lost only 1.65%. Over the same period international stocks (as measured by the Vanguard Total International Stock ETF) have lost only 2.5%. YTD U.S. stocks (as measured by the S&P 500) are up 0.65% while international stocks are down 3.6%.
So why act? To feel better? Ugh. Let’s face it – if Friday’s market activity makes you want to sell you probably shouldn’t own stocks in the first place.
Investing requires two things:
- a balanced portfolio
- sticking with it
#2 is a hugely important. It’s tough to stay on plan when others around us are selling. It’s tough to say the world is round when much of what we read, hear and see is shouting about a flat earth.
Nonetheless if you feel compelled to act there is one move you can make. If you do not have a balanced portfolio now is a great time to build one. Too heavy into stocks? Supplement with bonds. Too much cash? Dollar Cost Average into stocks that are on sale.
Balance and diversity offer calm in any storm.
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