|Pathways Advisory Group, Inc.|
Jeff Karst, CFP®
Thursday, August 22, 2019
Often times when I read the headlines, I get a chuckle. Of course, their intention is to grab your attention. The more people that “click” on their article, the more advertising they can sell. It’s not about education for them. With a bit of volatility to end 2018, it was prime time for the media. We’ve seen the same within the last few weeks. Here is my (not so) definitive guide to interpreting the headlines.
Basically, stocks should be going down and the only way they were able to make it positive for the day was through sheer grit. Much the same way a zombie climbs out of the grave.
You can replace “Intensifies” with any word you like (to make the headline more attention grabbing). The media always uses the phrase “sell-off”. As if, by some miracle, stocks are sold and no one buys them.
For any stock to be sold, there must be a buyer on the other end of the transaction. If there were no buyer, the stock could not be sold. For every seller that believes now is the time to sell, there’s a willing buyer that believes now is the time to buy. “It takes two,” as they say.
This usually means that one of the major stock indices have dipped slightly in value, often by 2-3%. It’s often coupled with some impending doom for the economy, stocks, or both. Based on this headline alone, you’d guess markets are down 35% for the year. What’s often missed is that – although they dipped for the day – stocks might actually have strong positive performance for the whole year.
This is the case in 2019. The S&P 500 (+16.73%), Russell 2000 (+11.7%), and all but a few international indices are positive year-to-date despite the recent “turmoil”. Beyond one year, these dips tend to be short-lived compared to the overall long-term growth of stocks around the world.
We have no clue how the year will end. But as Evon wrote in his blog post, Perspective During “Turmoil”, “It’s amazing what perspective can do when faced with one day’s dramatic event. Taking a step back gives us the opportunity to evaluate what’s really going on and not overreact.”
How does the company miss expectations? Wouldn’t they want to always exceed expectations to, you know, make more money? Perhaps the real answer is, the analysts were wrong. The media doesn’t want to say that. That would mean that the prognosticators aren’t actually able to see the future.
“It’s tough to make predictions, especially about the future.” – Yogi Berra
It’s hard to ignore these headlines given what we experienced in the 4th quarter of 2018 or in the past few weeks. It’s human nature to be affected by the short-term news flashes. We must remember what the long-term trend of stocks has been. If your goals are long-term, then your focus should be too.
Lastly, focus on the things that are within your control. We can’t control the ups and downs of the markets, let alone guess where they’re heading next. We also can’t control what the news writes about it. Instead, focus on the amount you invest, the amount of each type of asset you hold (stocks, bonds, and real estate), the expenses you pay, and the taxes you owe. Therein lie the keys to your success!
Note: All returns data are as of writing, 08/19/2019. The data very well may have changed by the time you read this
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