We are all suffering from TMI (Too Much Information.)
The more financial blogs, cable TV channels and Twitters and tweets there are, the more frenzied becomes the need for ever-more ebullient or terrifying headlines and content. Why? Because there are so many "eyeballs" (as thee and me are referred to by those who tabulate such things) and more and more websites needing us to visit them to justify their advertising dollars.
The result is that we are swept along in the rush of enthusiasm or plunged into despair by the gloom of the latest "consensus." I, too, fell prey to this affliction. Literally for decades, I did my research pondering my way through annual reports and 10-k's, checking insider buying and selling, and trading only when I believed it particularly auspicious to do so. Then, after the bear of 2008-2009, when we had protected our clients from the worst of the decline but still lost capital, I decided we could do better. I fell into the trap of over-trading based upon short-term market moves. I discovered two things: (1) that is an uncomfortably too-frenetic way for me to spend my time and (2) the results were inferior to what we've done for years and years prior.
How does this relate to the question posed in the title?
The latest brouhaha among purveyors of daily market "buy, no sell, no, buy! I meant, SELL!" advice is to cite The First Two Days of January, First Three Days, First Five Days, or Entire Month "rule." (For more on these, you can check out my article on the subject here.) Before we allow them to sway us, please take a look at the two charts below:
(click to enlarge)
This was the first full month of 2014.
The first two days were down.
The first three days were down.
The first 5 days were flat.
And by the end of the month, the US market, as measured by the most popular benchmark, the S&P 500, was down, down, down, erasing 3% from a market-following portfolio.
If you allowed yourself to be swayed by the events of a single month, you would have missed a pretty good year…especially if you locked in that 3% loss and re-entered somewhere higher.
Now here's 2015, or at least the first 9 trading days:
(click to enlarge)
Most news outlets will report the S&P 500 is down 2.1% for "the year." That's true, but let's not lose sight of the fact that "the year" is just 9 days old! Will 2014 repeat? I don't know. And neither does anyone else. Like every year, there are potential black swans lurking around every bend.
There are also plenty of depressing gray swans in plain view: Europe's inability to wean itself from social programs that are bleeding it dry, create new jobs, or embrace entrepreneurs without taxing them into oblivion before they even get started. China's slowdown, which only confirms all our previous comments that there is no transparency in any Chinese numbers so they are always to be taken with a grain of salt. Low oil prices which render truculent nations like Russia, Iran and Venezuela potentially more desperate and dangerous - and fragile ones like Nigeria more prone to overthrow by vicious criminal crazies like Boko Haram. Etc. There are always reasons not to buy; hence the maxim, "A bull market climbs a wall of worry."
Of course, there are any number of white swans as well. Lower oil revenue might make Venezuela stop subsidizing Cuba, making it more receptive to reform; might make Russia more willing to withdraw its troops (in civilian clothing, but still Russians) from eastern Ukraine; might make Iran more willing to accept diplomacy rather than revolt from within. China might find itself growing again; India under new business-friendly PM Narendra Modi may make us forget about China's ills as India surpasses China in growth rate; the Fed could hold off raising rates or raise them so slowly and steadily as to render it a non-market-moving event. Etc.
How is this January different from last January? Every month in the market beats to its own rhythm, as does ever single trading day. But before anyone throws in the towel in despair because the market is down 2.1% after 9 trading days, we might be wise to at least imagine that it could easily recover from here, making us quite happy we stayed in and/or used this as a buying opportunity for the best asset classes, sectors, industries and equities.
It unfolded like that in 2014. It might again. If we as investors stay focused on a strategic approach to asset management and asset allocation, we'll do far better than we would by madly following the latest euphoria or the latest despair.
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As Registered Investment Advisors, we believe it is our responsibility to advise that we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund one year only to watch it plummet the following year.
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