Monday, August 3, 2015

Stock Investing: Surrounded by Bears

I hate financial television. I loathe it, can't stand it, utterly refuse to watch. Because turn on any business news channel-- Fox Business, CNBC, CNN Money, you name it-- and there's a guy in a pricey suit telling the camera that the stock market is too high, he's never seen such lofty valuations, the bull market is over, get-out-while-you-can-'cause-it's-all-coming-down.

Perma-bears everywhere
These market bears are everywhere, all around us, at all hours. They write newspaper columns and well-publicized blog posts and they turn up on talk shows and on radio. They speak with total conviction. They come with fancy Wall Street credentials and years of experience and seemingly accurate past predictions. And they know, they just absolutely know that the S&P 500 will fall any day now. The war in Syria/debt default in Greece/stock market rout in China/nuclear talks in Iran/election uncertainty in the US will cause a massive market selloff. You'll lose your life savings.

And they are totally, completely, utterly full of it. All of them, completely 100% nonsense. They know nothing. It is your job-- it is your duty to ignore them.

Dire warnings: Michael Sincere
First of all, no one knows what the market will do. A crash is a random and irrational event. It's a public hysteria confined to the equities market. Saying there will be a big drop is like saying a bee will fly up your sleeve. Of course it could happen, but there are no precedents, no warning signs, no patterns and no typicality, therefore it is totally unforeseeable. it never happens like it did before, and anyone who says they know different is lying, to you or to themselves. If later it turns out they were right, they got lucky.

Secondly, those guys in suits are paid to raise the alarm. No one wants to watch a guy who tells us 'the markets are strong, stocks are rising, your money is safe' (or absorbs the advertising bookending his statements). That makes for lousy TV. Worry is what gets viewers to pay attention. Have you seen the local evening news in the last 20 years? It's all shootings and car wrecks and fires and kidnappings. Any statistician will tell you our society hasn't gotten more violent or more unsafe over the years. But the news sure has. And financial news is no different.

Third, it doesn't matter anyway because the stock market always rises more than it falls. Even if you fall prey to the fear and even if your whole portfolio takes a big hit-- 50% has in fact happened-- if you ride it out you will be fine.

"The stock market is a device for transferring money from the impatient to the patient." --Warren Buffett

I cannot emphasize this enough: doing nothing in the face of widespread market panic is the hardest thing in investing. It is far more difficult than successfully picking growth companies, more difficult than the discipline to keep socking away the money to buy with. Sitting on your hands-- or tougher still, buying-- is flat out viciously and miserably hard.

It is also the key-- in fact, it is critical to long-term wealth. You cannot get there from here unless you refuse to sell when things turn ugly. Have confidence in your companies, have patience in the market.

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