10 Random Thoughts About The Market & Humans

10 Random Thoughts About The Market & Humans

I am on vacation this week on the big Island of Hawaii therefore this week’s post will be slightly different. Below are ten random thoughts on the market and humans. Enjoy.

Lesson #1 – Think Visually First:

When bad things have happened, they tended to do so below the 200-day.

Since 1960, 22 of the 25 worst days have occurred below the 200-day moving average.  

Of the 100 worst single days over the last 55 years, 83 of them happened while stocks were below the 200-day.  

The average 30-day return going back to 1960 is 0.88%. The average 30-day return when stocks are below the 200-day is -2.60%.

Lesson #2 – Plan For The Worst:

Planning for what could go wrong, and being prepared to handle it, makes you confident and therefore optimistic that you can handle anything that life throws your way.

“My optimism and confidence come not from feeling I’m luckier than other mortals, and they sure don’t come from visualizing victory. They’re the result of a lifetime spent visualizing defeat and figuring out how to prevent it. Like most astronauts, I’m pretty sure that I can deal with what life throws at me because I’ve thought about what to do if things go wrong, as well as right. That’s the power of negative thinking.” – Col. Hadfield

Lesson #3 – Set limits beforehand:

According to Col. Hadfield, the temptation to take risks is strongest close to the actual launch date. There is so much momentum built to get to launch, it would be easy to bend a rule here and there to allow the launch happens on time.

“We came up with them [Flight Rules] when there was no urgency or pressure and there was enough time to pull on every string and analyze every consequence.” – Col. Hadfield

[RC here: Just like with a rocket launch, we are going to be more tempted to bend our rules (our investment strategy) in the heat of a market downturn or a raging bull market than we are beforehand when cooler heads prevail.

>The best investors have their own “flight rules” before any money is invested. They know the rules and how to respond in all circumstances.]

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Lesson #4 – Planning is painful:

Some thoughts about planning ahead:   

…Things like picking an astronaut to tell his wife if he doesn’t survive the mission, reviewing his will and straightening his financial affairs. What needs to happen if he doesn’t return? It may seem counterintuitive, but making sure his family is taken care of in his absence didn’t make him feel anxious, it reduced his anxiety.

You probably aren’t going to space anytime soon, but just like with Col. Hadfield, planning ahead and making sure your family is taken care of might feel unpleasant at the time, but you’ll be thankful you did it.

“But that didn’t make me feel like I had one foot in the grave. It actually put my mind at ease and reduced my anxiety about what my family’s future would look like if something happened to me.” – Col. Hadfield

Lesson #5 – Fear is not knowing where to focus.

Many people are anxious, nervous and even fearful regarding their future. And usually this comes from not knowing what to expect and where to focus—not from being in a particularly bad situation. This feeling of uncertainty, of being overwhelmed, of not even knowing where to begin, creates a sense of fear and helplessness. Knowing what matters and what doesn’t, then keeping the proper focus, alleviates much of the fear in investing.

“Fear comes from not knowing what to expect and not feeling you have control over what’s about to happen. When you feel helpless, you’re far more afraid than you would be if you knew the facts. If you’re not sure what to be alarmed about, everything is alarming.” – Col. Hadfield

Lesson #6 – Sitting is Hard…

According to University of Oregon economist Tim Duy, “As long as people have babies, capital depreciates, technology evolves, and tastes and preferences change, there is a powerful underlying impetus for growth that is almost certain to reveal itself in any reasonably well-managed economy.”

Numerous studies have shown that those who trade the most earn the lowest returns.

Remember Pascal’s wisdom: “All man’s miseries derive from not being able to sit in a quiet room alone.”

Overtrading is indeed a big killer of returns. As finance researchers Brad Barber and Terry Odean show in a landmark 2000 paper, “trading is hazardous to your wealth.”

Yet our instinctive reaction to every market correction or downturn is to change something and almost always to sell something.

Lesson #7 – Knowing when NOT to:

As David Rosenberg explains, “Corrections are part and parcel of the investment process, they come and go, and it is imperative to take a deep breath and realize that what is most important for building wealth is not ‘timing’ the market but rather ‘time in’ the market.”

It pays to stay invested. So please listen to Wesley Gray: “You can lead an investor to a winning strategy, but you can’t make them stick with it when the going gets tough. Unfortunately, success comes at a steep price. You need to be willing to sit through periods of downright dreadful performance. No risk, no reward. It really is that simple.”

Lesson #8 – News and The Market:

The market is better at predicting the news than the news is at predicting the market.” Bottoms are made by heavy buying, not heavy selling. Stocks not going down on what appears to be bad news is a positive sign. – G. Loeb

Lesson #9 – Correlation:

Sir John Templeton before passing away shared he thought we lived in dangerous times for the stock market. He wasn’t saying this due to “valuations?” Nope! What do you think he was referring too? He was referring to correlation. He shared that in the past, he felt that diversification really helped, as many stock markets moved in different directions. He felt correlation had gotten so high, that the world was turning into “one” large highly correlated market.

Lesson #10 – Emotions:

Doubt is uncomfortable, but Certainty is absurd. If you wish to see the truth, then hold no opinions. – Unknown

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

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