Perhaps you’ve noticed that the financial markets have gotten a bit more volatile over the last couple of weeks.
It might have something to do with recent reports confirming the U.S. economy is slowing down, something we’ve all been anticipating at least since the beginning of last year.
It could be the news that Warren Buffett’s Berkshire Hathaway is selling half of its largest stock holding – an investment decision that’s being mistakenly (I believe) perceived as an effort to time the market. Buffett is no market timer, and Berkshire was already sitting on tons of cash.
Or it could be a hotly-contested presidential election, which – if I recall the civics class I took in high school – has been on the calendar since 1788, when the U.S. Constitution was ratified. Yes, this election will be historic. They all are.
The mere notion that stocks might fall more than 5% in a given year – intra-year declines have averaged 14% since 1980 – was enough to send snowflake traders scurrying to the Fed demanding an immediate “emergency” interest rate cut. They will likely get at least one rate reduction by the end of the year, but we already knew that, too.
Even if they do know their history, stock traders don’t need a logical reason to panic. That’s why you and other long-term investors hold an edge over them. You don’t have to sell stocks just because they fall in price. You can use the spike in market volatility – again, which we all saw coming – to find new buying opportunities for your portfolio. And you can shun the idea of timing the market, which history has told you doesn’t work anyway.
In other words, you can be an investor, not a trader. It’s a lot less stressful.
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Words to the Wise
“Keep it simple. Don't try to be a hero. Compounding takes a lot of time. Volatility is the cost of admission for high long-term results.”
– Morgan Housel
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