- Pick any moment in market history and you'll find plenty to worry about.
- Believe it or not, market worries are bullish.
- It's only when certainty is ubiquitous that danger abounds.
- A better bet is to focus on fundamentals and remain disciplined.
Ben Franklin said the only two things you can be certain about are death and taxes. Investors would be wise to heed the advice.
Despite Gains, Caution Is Still the Watchword
By Michael Kahn, Barron's
We don't care how far back you go—uncertainty rules. Sometimes our memories fail us, but that's why we have historians. Think for a moment on how tumultuous the 20th century was. Depression, two major wars, a bunch of little wars, a Cold War, Communism, industrialism, globalism, fascism, terrorism…and those are just some of the big trends.
Every single year myriad uncertainties rule the public consciousness. The world is in constant flux. In the moment, the world feels chaotic and wobbly. It's only when we look back that things seemed to have an order and we gain perspective.
In a global environment of big, pervasive, intrusive media, investors now more than ever are bombarded with too much news that just doesn't matter for long term stock investors. The result is fixation—near fetishizing—on economic indicators to divine what markets will do the next year, month, minute…hour! Analysts have created countless meaningless correlations and theories about stock markets and oil prices, gold prices, days of the week, hemlines, charts, averages, you name it. They track every little tick upward or down, then often extrapolate them far out of proportion.
Case in point: Folks flipped out today about US GDP numbers that came in…unrevised! A fourth quarter GDP reading of 0.6% instead of the forecast 0.8% is supposed to scare us? In light of all the market's been through the last hundred years? Economic catastrophe over two tenths of a percent? You've gotta be kidding.
If we take a step back and think of today's environment in the context of history, it's easy to see today is no scarier than any other. In many ways, less so. Stock markets over time have consistently climbed amidst fears and realized dangers far greater than what we're seeing today. Such a simple observation seems too obvious and simple to be true. But it is.
Keeping context in mind is precisely what the discipline of investing is about. Rule number one is not to shift your strategy on psychology alone. Those calling for recession today when we've yet to have a single quarter of negative growth; proclamations of a credit crunch when aggregate borrowing is up; panic over stagflation with core inflation readings consistently around 2.5%--this is analysis without perspective and it starkly reveals just how psychologically driven daily market action can be.
In the last few days, pundits have said this is a "dead cat bounce" and a "sucker's rally" while others laud the return of the bull. You don't need to heed either one—with positive economic fundamentals globally and widely dour sentiment, you know all you need to. It's an environment where disciplined investors stay the course and ride out normal short term volatility.
There's never been a dull moment in stock market history. But that doesn't mean you should be on the sidelines.