"I don't Know..." - Said No Financial Pundit Ever
“I don’t know….”
- Said no financial pundit ever.
The reality is that the world is a complex place. Financial markets are influenced by thousands and thousands of variables on a daily basis. Investors are just human beings with fears and flaws and a tendency to make short term emotions based decisions for what should be rational long term considerations. You hear comments regularly like, “…the market is telling you….” Or “….the market is looking for a reason to go lower…” as though the ‘Market’ is some force, some external power with its own energy and mind. Let me tell you a little secret: the ‘Market’ is just you and me and a few million other people buying and selling stocks. That’s it. We are the market. Our collective buy/sell decisions at any moment determine the current price of a stock. And when it comes to a lot of matters like how the coronavirus will spread or if stocks will be up or down tomorrow, the simple reality is that we don’t know. But thankfully you don’t have to have a concrete answer to every unknown in order to achieve your near and long term financial goals. Instead, you just have to get a few basics right, and not make really damaging mistakes like selling stocks in a panic for funds you don’t need for years to come.
So, what causes people to sell stocks? Many millions of shares of GOOG have been sold in the last few trading days, the stock declining nearly 10% during this brief period. I am highly confident that if you asked each and every seller (aka the ‘Market’) why he/she sold shares, you might get 1 out of 100 to give you a rational and well thought out analysis of GOOG and how it relates to their financial plan, etc. The other 99% would say things like:
“I was scared.”
“I got a margin call; I had to sell something.”
“I heard someone on TV say I should sell it.”
“Bernie Sanders is ahead in the polls. He’s going to destroy capitalism as we know it.”
“The coronavirus frightens me.”
“The market was dropping so I sold.”
You get the point. Most people sell not due to a well thought out long term financial strategy, but based on short term, emotions based factors. Even for a great company like GOOG which is in either a monopolistic or duopolistic position in most segments it serves. The reality is that none of the considerations mentioned above will have one iota of impact on GOOG’s ability to churn out more and more profits over the next 5 – 10 years. But even though investors should only buy stocks with the intention of holding 3-5+ years, when short term emotions take over, then all bets are off.
The only question is: are you going to be one of those people who hands your hard earned money over to someone who has patience and discipline? Are you going to let your mind – your emotions – control you and decide what your financial future holds? As Aristotle said, “Knowing yourself is the beginning of all wisdom.” I know myself well enough that if I have a TV in my house, I’ll watch it. Solution? I haven’t had a TV since I left my parents’ house after high school.
It is very, very important that you know yourself. Not how you will behave when the sun is out and conditions are perfect. We can all do pretty well under those circumstances. I am talking about when it really matters, when critical decisions, good and bad, are being made; in the eye of the hurricane. When you acknowledge things like, “I don’t know” or “that is outside my competence” or “I am not sure I can handle that” you are not being weak, you are being strong. You are being smart (you probably won’t get a job on TV as a financial commentator, but that’s fine). It takes strength to admit a weakness, and when it comes to your hard-earned money, it is very difficult to make up for a bad decision. Thus, regarding the very important areas of your life (health, money, family, etc.), be very honest with yourself and don’t be penny wise but pound foolish. If you know you won’t get out of bed in the morning to get in an important workout, hire a personal trainer to instill accountability. If you are having an issue with a loved one, sit down and discuss it, or find a qualified third party to help guide you through the challenge. If you are concerned you may make a heat of the moment bad financial decision based on things you truly don’t understand (the head of organizations like the CDC rightly say they “don’t know” when asked what we can expect in the coming weeks for the coronavirus, how would a laymen possibly have answers on these incredibly complex matters?), then work with someone who is disciplined and objective and will keep you on track for your long term goals. Then go enjoy your day.