Thursday, September 3, 2015

Market Swings are Making Me Nauseous

When I was young, the nearest amusement park was called Nantasket Beach, on the far side of Boston harbor. It was the kind of place that looked magical to those under 10, like a perfect afternoon for mischief for teens, but dirty and sketchy to the adults. Nantasket Beach had two roller coasters-- the newer, sturdy kiddie coaster and the old big one, a fading white-washed wooden behemoth visible for miles like a billboard. In my family we had to earn our way up to the big one, a rite of passage. It was deafening and full of steep banked turns and whoop-de-dos and one last great hill, so tall the ride would slow almost to a halt as it clanked and rattled its way up the long rise. Then suddenly it would drop, leaving your stomach behind and plummeting to your certain death. Then whip around one last tight turn ... and it was over. Miraculously you had survived, green and a little off balance passing through the turnstile on the way out.

Recent stock market movements have me recalling my old haunt, though the market hills keep getting bigger-- and the ride doesn't seem to end.

Naturally, the reasons for all this volatility depend upon the talking head of the moment and who's paying him to pontificate:

  • China
  • The Fed will likely raise interest rates
  • Tech bubble
  • Greece
  • Startup bubble
  • The Fed may not raise interest rates
  • Vladimir Putin
  • High-frequency trading
  • Oil glut
  • Global "jitters"
  • Droughts and wildfires
  • ETFs

I could go on. The gist of the list: no one knows what the hell is happening.

But here's the really fun part: It doesn't matter. It doesn't matter why, doesn't matter that it's happening. Because over time the market clearly rises:

Stock Prices 1789- present 
So you have to ask yourself a couple of questions: Is it play money or your kids' college fund that we're talking about? Are you speculative or committed? Are you a trader or an investor?

An investor develops the experience and the wisdom, through months like this, to know that the market goes crazy sometimes. It's driven by emotion, or computer trading algorithms or a bubble or world events-- but it occurs every few years and then it settles down and things get back to normal. And the only way to profit in the long run, absolutely for sure without question, is to leave your money in there.

Remember you own a stock-- a share of a market-leading, well-run business-- that varies greatly in value until sold. It goes up, it goes down, and it makes no difference to your pocketbook until you sell it. When you sell, you have to report your gains or losses to the taxman-- and now it's real. So if you give in to the panic of a really horrible down day, if you believe that the business you bought is suddenly worth a whole lot less today than it was yesterday (usually through no fault of the business) you'll be locking in losses. And by the time you've worked up the nerve to buy back in, the market will have rebounded and you'll have missed the best days. You will have bought high and sold low, which is the exact opposite of your intended path. Don't do it.

Instead, go for a run. Get a massage. Play some hoops with a friend, have a drink, watch a movie. Distract yourself any way you can. Tomorrow-- or the day after that, or the day after that-- things will look better. Your stock, which you chose carefully following diligent research, will rise again. You'll be made whole in time. Take another look at that chart above: as my friends at The Motley Fool have said, “The stock market has a 100% success rate at erasing corrections and bear markets.” Full stop.

No one said stock investing was easy, or that it was for everyone. It's an art and a skill, and yes, all the drama and hand-wringing and lurching about can be a challenge even for the seasoned. Some people just hate roller coasters. But that's why they have Dramamine.

(For more Foolish wisdom, click here)

Drifting to Fifty | Random unrelated nugget of the week

Money is a renewable resource and for most people it will come and go. Time, once spent, is gone forever. If there's something you need to say, someone you want to be with, or something you really want to do, find a way to do it.

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