Happiness is the Way
Many smart economists and financial pundits were predicting a recession for 2023 (as well as for 2022, and 2021…but for 2023 they really meant it). When the numbers rolled around recently for Q3 2023 GDP, they clocked in at 4.9%. No, I am not referencing China GDP #s in 2008 when their economy was booming. I am referring to the good old US of A in late 2023. 4.9%. What an economic machine. Yet many investors sat out 2023 – especially after a very rough 2022 (although rather than engaging in rearview mirror investing, as noted in my recent newsletter Lessons Learned, last year’s losers are often this year’s winners).
What most investors forget is that the answer – the way – is not ‘out there’ somewhere. It is not contained in Jerome Powel’s brain, or amongst Warren Buffet’s pithy (and smart) utterances, or within Jim Cramer’s lightning round prognostications.
The answer – the way – lies within you. It always has, it always will.
A total paradigm shift is in order. The goal is not to ‘beat’ an arbitrary basket (index) of stocks like the Dow Jones 30 over an arbitrary time horizon like the amount of time it takes the earth to revolve around the sun. This is about having your money work specifically for you. This is about deciding on your goals, your needs, your wants, the quality of life you want to live (how much travel do you want to do, how much money do you want to save for your kids’ college, etc. – very specific, personal questions only you can answer) and then setting forth – and executing – a plan consistent with those goals, needs, and wants.
The S&P 500 does not live your life. It does not need to go to the doctor, it does not have children, it has not always wanted to visit Italy. It just goes up and down day to day, and up over time. You will never predict the next payroll number, or inflation print, or GDP readout, or exogenous event that impacts the market. And here is the secret (to a happy life): you don’t need to. In fact, the less you try to do so, not only the happier you will be, but the better your outcomes will likely be financially and otherwise.
There are things you control in your life – how much you save, how diversified your portfolio is, what foods and drinks you consume, whether you call a friend, etc. These will determine the quality of your life. One thing you have zero control over is where the S&P 500 will trade today or tomorrow or next week or next month. So as Elsa says, let it go. Take that same energy you spend tracking the stock market, or some economic indicator, or the daily balance of your stock portfolio, and put it into things over which you have control and will actually make a difference to your pocketbook and smile on your face.
Think back at the times the market was in the midst of a material decline – Q4 2022 (the so-called Magnificent Seven being anything but great, cratering 30%, 40%, 50% or more into the end of the year), Q1 2020 (the pandemic-induced panic), Q4 2018 (when the Fed unexpectedly tightened), Q1 2009 (the great selloff from the Great Recession). If someone interviewed you at the time, you would likely have been riddled with fear, ready to sell stocks at any price just to ‘get out.’ Seeing red day after day would be causing your stomach to tie up in knots. By definition, as stocks cratered, more and more people sold until there was the usual crescendo, a flushing out process where trading volume exploded as those who couldn’t take it anymore (AKA the impatient and ill-prepared) handed over their stock certificates to those with patience and the emotional ability to buy high quality companies on the cheap.
Fast forward to today, and what would you counsel your past self? The answer is easy: you would tell yourself to buy as much AMZN (that has rebounded nearly 100% in the last year) or other quality stocks as possible – or at least not sell in a panic for funds not needed for years. You can rightly proclaim, ‘it is easy for you to say in retrospect that investors should have bought more – or at least not sold – because now we’ve seen that the stocks rebounded.’ But that is missing the point: they always rebound. Not every single stock rebounds – there are plenty of companies still down massively from their peaks (e.g. PTON is down 95% in the last 3 years, HOOD is down materially, etc.). But broad market indices like the S&P 500 have always rebounded (often more quickly than one would expect), and if you do your fundamental homework – and stick with the highest quality, best of breed companies in a given sector – then the chances are very high that your basket of stocks will also rebound. All this requires is patience and a plan for the inevitable periodic declines by having cash set aside to cover short-term needs (so that you don’t need to sell your stocks at the very wrong time to cover expenses in the year ahead).
As Mike Tyson said, everyone has a plan until they get punched in the face. If you know yourself well enough to know that you are likely to throw your plan out the window once there is blood in the streets, then work with a professional who can not only help you create a plan but stick to it through thick and thin.