Here are at The Value Focus we talk about business decision making around Strategy, M&A, Exit Planning and Business Valuation.
Short term trading in publically traded equity markets is not what we advise on.
Still, I get asked about this topic reasonably often. So here is some perspective.
Recently, the publicly traded stock markets have become more volatile. I do not know if this will continue or not. Neither you or I know how the markets will perform in the short term. I do know that the markets tend to increase over longer periods of time. In fact, there is not any 20 year historical period where the markets lost ground.
So keep the following in mind if market volatility continues or gets worse in the future.
- On average, every five years markets will decline over 30%.
- There is a 14% decline on average each year.
- Declines of 2% or higher happen about five times a year.
- On average, markets increase every three of four years.
- In the long run, the stock markets will outpace inflation.
- Trading – the idea that you can time the market – does not work. This has been repeatedly shown to be the case by private investment research and academic studies.
- NEVER make important decisions while feeling emotions.
These are the indisputable facts. Everything else is noise and sales hype.
You are NOT George Soros, Stanley Druckenmiller, Ken Griffin, Richard Driehaus, and the others. You do not have their resources, analytical capabilities, capital, and experience. Do not expect to trade like them. Do not expect their results. In fact, most of the so-called “name” investment managers do not even perform as well over time as the market indexes. So you probably don’t want to be like them anyway.
When I first started my career, a person I knew who gambled in stocks (also sports, casinos, and pretty much anything else) tried to give me “sage” advice on investing. When asked what the markets were about to do he said: “The market is going to do one of three things. It is going to go up, go down, or stay the same.” While that is true, it was also an excuse to justify his inevitable trading losses. This person did not know what they were doing. The simple fact is that there is a difference between trading and investing.
Turn off the short-term noise and do not listen to the hyper-ventilating television personalities. Do not listen to know-nothing friends and relatives who freely give investment and trading advice.
Recognize that the market will fluctuate in the short term. No one can predict how that will go. In the long term, it goes up.
Always think like an investor and look at the long term.
