Q2 2014 Shows at YTD on the S&P 500 of 6.1%. The market continues to push forward in the face of geopolitical turmoil and the psychological wall of all-time market highs on the Dow and S&P 500. See http://www.bloomberg.com/markets/ for complete data.
The tragic and heart wrenching affliction of what was originally referred to as “Shell Shock” after the First World War is something that we can never make light of. Post-Traumatic Stress Disorder that affects soldiers and is a severe consequence of the horrific conditions and realities of war. Our heroic servicemen are facing an ever more daunting challenge in their post combat recoveries in the face of the modern warfare. We can only wish and pray every day for war to be driven to extinction through a more highly evolved geopolitical system.
Post Financial Crisis Traumatic Stress Disorder (PFCTSD)
For our purpose as investors the understanding of a lingering reaction to extreme events is critically important in the effort to see the world as realistically as possible. The notion of “PFCTSD” is something that seems to be pervasive and quite powerful in the mind of investors in the US and globally.
There is prevalent evidence that these post crisis dynamics are having significant impact on the decision making of the investment public. The New York Times produced an illuminating piece on this, http://www.nytimes.com/2014/06/07/your-money/fear-of-equities-drives-more-investors-to-cash.html noting that there are a large percentage of investors in the United States and globally holding significant allocations of cash in their portfolios. It seems that a great amount of the selling that occurred during the financial crisis produced cash that has not found a way back to productive use.
Subsequent to the downturn of 2007 and market bottom of March 2009 there has been numerous books, mountains of discussion, and a rush by commentators predicting the next shoe to drop. Investors seem to have a persistent sense of foreboding that another leg of crisis awaits us. Doomsayers have been elevated to financial media star status. http://www.businessinsider.com/meet-the-doomsayers-slideshow-2009-4?op=1 The aggregate financial media sphere has a special texture that creates a focus on the impending horrible things that await the markets.
Meanwhile in the land of what’s actually happening, we have one of the most powerful equity rallies in many years. Long term investors that have stayed fully invested are seeing significant appreciation in their portfolios. This rising market is happening directly in contrast to the many doom and gloomer’s prognostications of ruin.
It is important here to emphasize that many of the doomsayers are media personalities or promoters and not actual money managers. As noted in previous writing, most quality money managers do not broadcast their market view, but rather they are busy with the actual craft of managing portfolios. Bold, scary predictions can sell books and newsletters very well. The outrageous and often dire claims, particularly after the trauma that has occurred over the last decade, are powerful tools in the marketing of all kinds of financial publications and products.
The impact on this type of scary talk and predictions can influence those looking to avoid the next recessionary cycle. There are many pundits, particularly on television (these people are often simply public relation operatives that have nothing to do with actually managing money) that need something exciting to say. The obvious and boring advice to stay calm and think about the long haul has little place in media strategies that drive interest in the highly competitive modern media landscape.
It is not difficult to find mainstream examples of these market forecasting operatives actually being cited as sources for seemingly informative journalism. These players are everywhere in media without much filter or any serious editing / fact checking. The aggregate effect of this is that many people absorb the info as if it has some value. It is quite common to hear the expression, “ they said that the market is ready to go down and the economy looks like it is in for trouble…”. Who is they?? Let’s take a look at a case in point.
A USA Today article written by Adam Shell, was published on March 3rd, 2013
http://www.usatoday.com/story/money/markets/2013/03/02/bull-market-anniversary-wall-street/1954731/
seems to attempt to inform on the rise in the market subsequent to the lows of March 2009. Let’s take a close look are what is actually being said and who is saying it. It is intriguing to note that on the bio page, USA Today states, “Adam Shell covers everything Wall Street, from the stock market’s maddening mood swings to pundits’ bull and bear rants. Despite writing about stocks for a living, he’s never owned a single stock.” I guess we should stop right there. If he has NEVER known what it feels like to be an investor, then what is the point of him being a financial writer? It is perplexing that this individual is a journalist on financial affairs for a widely distributed publication.
One of the commentators cited in the article, Walter Zimmerman, is a technical analyst that has a history of making big, bold predictions. He also happens to work at a “technical advisory service” that sells subscriptions that range from $25 to $3500 per month (One would hope that for $42,000 per year, you could really make some serious dough). Technical trading involves watching the market on a quantitative and often short term basis to trade for profits. There is conflicting evidence as to the efficacy of these technical trading ideas. Mr. Zimmerman is clearly in favor of trading versus the uncertainty of long term investing. He is media public relations operative first and foremost and at best has insight on technical trading strategies that have little to do with what most of the investing public needs to be thinking about.
It is certain that both individuals cited above are smart and earnest in their comments. This material, exemplifies the type of advertising driven media that seeks to distribute bold discussions that can attract attention. It is also powerful to witness the types of sources like technical trading commentators that wrangle into the mainstream media information stage. When we look behind the curtain, the material can reveal much less weight than might appear through the normal brief and shallow exposure that most pop media consumers experience.
This USA Today piece was then parsed by an article published on March 7th, 2013 by CBS Moneywatch
http://www.cbsnews.com/news/buy-and-hold-investing-discredited/
The Moneywatch piece seeks to refute USA Today by pointing out oversights and omissions in the article. The Moneywatch piece is seeking to refute the notion that “buy and hold is dead”. This “death” of buy and hold investing is likely greatly exaggerated and will likely prove to be specious and flawed. The underlying premise that you cannot succeed by holding quality investments long term is ridiculous in that it implies that there is some other way you can succeed. Some other way…hmmm…like trading to produce profits or timing the maket? Sounds really challenging.
One of the recurring themes that we grapple with in our life and investment decisions is the proverbial, “now what?” which is so daunting a question that often it can send a man into a state of what my Dad used to humorously call, “a state of spasmodic rigidity”. He used to joke around on the golf course with this term that I am sure anyone who has ever played to great game can relate to. It happens to a golfer when he has an important shot say to beat a rival or shoot a good eighteen hole score. The tension builds and often causes miscues and ridicule among golfing buddies.
Buy and hold investors have to ask “now what?” much less often, thus avoiding the difficult decisions as much as possible. Traders need to seek that answer every day. This is not to suggest that long-term buy and hold is easy or that we will never need to make adjustments, but if we reduce the number of decisions that we need to make, we may also make fewer mistakes and endure less moments of spasm and rigid tension in our mindset.
Poker Players VS Landlords
As investors our goal is to act more like landlords and less like poker players. We want to be able to sit back with the confidence that quality assets pay dividends and tend to rise in value over time. This process is never easy. There will always be periodic panics and bouts of negative market events. Staying patient is very challenging and at times of market upheaval seems like the worst thing to do.
Making changes based on the texture of the market and news flow, or trying to predict what is coming next is seductive to many but it is likely much harder than staying patient. It is not altogether different than a poker player trying to predict the next card to be drawn off the deck. The deck of economic variables is much larger than fifty two cards, and may even be infinite. If we contemplate the trades we will need to make to beat the market, we are putting ourselves into situations that require difficult decisions over and over again. Using the extreme example of the wealthiest people on earth, we see few traders, but mostly innovators and owners of successful brands and businesses.
http://www.forbes.com/forbes-400/list/
The quiet nature of good news
Problems and conflict tend to dominate the world’s attention. The great things that are continuously happening seem to arrive by surprise. How long will it be before we can actually buy a self-driving car? Could that type of technology replace truck drivers? How much of our energy can be generated by solar power? Will Elon Musk be able to explore Mars? These discussions are the most important, but they do not receive the same types and levels of attention that Iraq, Global Warming and the US Federal deficit consistently get.
It is most rewarding to look for the good and exciting things that are happening in human endeavor, science and education. A recent piece in Fortune Magazine
http://fortune.com/2014/06/12/theranos-blood-holmes/
tells a quite inspiring story about a private company called Theranos that is doing incredible (and profitable) work with medical blood diagnostics. This is just one of so many upstart companies out in the tech world doing quite incredible things. These trail blazing companies are innovating and potentially prospering on the back of a huge convergence in advancing computing power, miniaturization, and a rising tide of venture capital firms that are financing the great breakthroughs of today and beyond.
Immerse and avoid
It is my argument that we need to put in the time in our quest as investors for the knowledge that can best position us to make good decisions. It is quite time consuming but methodical reading and research in order to become better at what we are seeking is so very worthwhile. Pop media, via Television and the internet seems to show again and again to be driven by dynamics that leads us to shallow and questionable conclusions. This seems like something that is quite important to avoid.
Pick an area in your life for real knowledge through immersion. The internet can be such a powerful information tool if utilized in rational ways. Subscription material such as
http://www.washingtonpost.com/
just to cite a few are a low cost portals to incredible amounts of material.
There are also amazing things happening in education for all of us. Coursera https://www.coursera.org/ has many free options for taking actual college courses that can be greatly beneficial to our perspective on a large and growing range of subjects. General Assembly https://generalassemb.ly/ offers low-cost education in basic computer programing and creative work.
These and many other resources with their broad and inexpensive accessibility offer an incredible opportunity to seek real understanding and fulfillment, not the empty feeling that can be imparted through a cable news show or pop newspaper.
So sit back, think like a landlord, and dive into a big summer reading list!