Definitely, maybe

I just finished a book called No One Wants to Read Your $hit by Steven Pressfield (he wrote the novel The Legend of Bagger Vance).  It is a very short book but the author provides real-world experiences throughout his career in writing ads, novels, movie scripts, and self-help books.  I bring this up because the market seems to be making new all-time highs and investors of all types continue to be skeptical and dumbfounded.  Investors are happy but are very nervous, no one wants to give up the gains they have enjoyed for the last 18 months.

“Can this continue?” 

We are asked this question nearly every day.  The easiest answer to the question is definitely, maybe.

“That’s not a good enough answer” is usually the comment that comes next.

Give me more.”

Well, the market is currently in an immediate term uptrend that started a few days after the election when the market bounced off its 200-day moving average and broke through a resistance line.  Is that better?

10.17.2017 SPY

“No, I need more.”

Well considering bull markets do not die of old age but rather die on euphoria we have that going for us.  Returns have been great this year but not excessive.

As for the global economy, check out the chart below from JP Morgan Guide to the Markets.  The table shows the Global Purchasing Manager’s Index (PMI) for developed and emerging market countries.  Readings above 50 are expansionary (green) and readings below 50 are decelerating.

JPMorganGuidetoMarkes 4Q - PMI

That’s a lot of green.  In hindsight, the market really took off after Global PMIs never went below 50 in February 2016.

“Well that is all well in good, but I am still concerned.”

Unemployment is the lowest it has been since the late 90s and with our economy being consumer driven that must be a good thing, right?   Furthermore, there is no leading economic indicator that is currently signaling a recession.

sept 17 UR

The point is that no answer is will ever be good enough.  If you already think the market is going down and you don’t reduce your risk, and then the selloff happens, you will get very discouraged.  You would likely say “I knew it” or “I should have reduced”.  The term for this in Behavioral Finance is called anchoring.  You are anchored to the value of your portfolio the day you publicly express your views on where the market is going, up or down.

If the market goes up, you will be excited and as time passes with no selloff, you will eventually forget that you were scared.  In the back of your mind though, you still will be worried about a crash.  These feelings are prevalent every day in the game of investing and trading.  This is what makes investing so hard.

So we laid out a few reasons why you should stay invested in this market, in reality, nobody cares (accept your advisor) if you reduce your exposure to stocks or that you rebalanced your portfolio to reduce risk.

Below is an excerpt from the book (emphasis mine):

 “In the real world, no one is waiting to read what you’ve written.  Sight unseen, they hate what you’ve written.  Why?  Because they might have to actually read it.  Nobody wants to read anything.  Let me repeat that.  Nobody – not even your dog or your mother – has the slightest interest in commercial for Rice Krispies or Delco batteries or Preparation H.  Nor does anybody care about your one act play, your Facebook page or you new sesame chicken joint at Canal and Tchoupitoulas.  It isn’t that people are mean or cruel.  They’re just busy.  Nobody wants to read your shit.” 

Timing the market is a difficult endeavor but guess what, there are no rules in investing.  You can do whatever you want.  Mr. Market doesn’t care if you make money or lose all of it.  On your gravestone, it will not say:  She stuck to her allocation through thick or thin.  No one will remember, better yet, nobody will care because they don’t give a $hit.

If you are worried about a market correction, you must ask yourself, will I remain disciplined and stick to my strategy when the market turns the other way?  Will my plan and portfolio be able to survive the next bear market?  How much am I willing to risk to achieve my objectives?

  • the first objective, to be able to pay all fixed and discretionary expenses throughout your life
  • the second objective, to not run out of money and feel ashamed in front of your family and friends

These two objectives can be summed up with the simple phrase “to do what I want, forever”.

References:

Nobody Wants To Read Your $hit