“Clarity in the stock market is always expensive to buy.”
I’ve been investing in stocks since 1984. During those 4 decades, I have heard thousands of comments along the lines of, “…. once we know X, then we’ll have clarity.”
- Once we know the Fed’s interest rate decision, all will be clear.
- Once we have the election results, we’ll have certainty on what we need to know.
- Once NVDA releases its earnings, then we’ll have clarity on the market.
Perhaps people need a false sense of comfort around things finally being ‘clear’ with the next macro-economic data report or Fed meeting notes release, but I will tell you a little secret: when it comes to the stock market, there is no piece of information that will make things clear – ever.
Case in point: after talking about, anticipating, debating, betting on – for months on end – whether the most recent Fed interest rate cut would be 0.25% or 0.50% - as though once that were known, all of our questions would forever be answered and worries eternally extinguished - within minutes after the Fed’s announcement, the debate turned to when and how much the next cut would be – if at all.
It is so important for your financial – not to mention mental – health, that you focus on the things that actually do make a difference over time. These include your personal financial plan (your balance sheet, cash flow, present and future needs and goals, etc.), how your assets are allocated (fixed income for near-term needs, stocks for your future self 2-3+ years from now), the quality of the holdings in your portfolio and other factors along those lines that are fundamental in nature. That is not to say that economic or earnings data are not important. It is just that they represent one data point in a never-ending stream of data points. The concern of deflation today will be the concern of inflation tomorrow. Half the people will think Powell made the right call in going 50 basis points for the first cut, half will think that is a mistake. Events and other factors we have not yet even considered will emerge…and then fade into the background. What will remain is you and your goals and whether or not you have a solid financial plan and portfolios that will allow you to achieve your goals regardless of and independent of all that data. That is the key.
Financial prognosticators are dependent upon trying to predict the often unpredictable (or more accurately, sounding good doing so, since even they know they’ll get it wrong much of the time). But your successful financial life is not a function of predicting and reacting to every last piece of news or data coming down the pike. To be sure, your financial outcomes are more dependent on things you control than you realize – how much you spend, how diverse and high quality your holdings are, etc. Once you realize this, not only does it free massive amounts of time and mental energy, but your results are very likely to improve as well – not to mention the quality of your life.