Over the last couple of years, volatility has really become the norm. And it’s gut-check time, it’s a shakeup, it’s an opportunity to check your emotions at the door and change the way you invest. If you’ve been feeling emotional lately (and you’re not alone), it’s an opportunity to drop it. If a swing of a few hundred points in a day is getting to you, then consider doing and thinking about things differently. If you’ve lost your perspective, or perhaps you never even had one, it’s an opportunity to regain it, or formulate one now, finally. And be honest in doing so, above all. Where are your one-sided stock picks and investment choices today? Where are your risky bets on marijuana stocks sitting right now? You have an opportunity right now to stop gambling and embrace passive investing.
The DOW has been trading within a range of 16k-18k, give or take. In the last year alone, we barely crested 18k on the DOW before plunging to below 16k, only to rise back up to just shy of 18k, only to again plunge below 16k, only to resurface again in a new climb toward who the hell knows what. When you think oil can’t fall anymore in price per barrel, it does. Then some idiot repeats some rumor that key countries will be cutting output and oil is on the rebound (or will be at some point, of course). The world is currently awash in oil (that’s not to say don’t invest in oil, but do it cautiously and the same way you might invest in your baby’s college education with the understanding that it may take a long time to provide you with returns). Lots of things have remained the case since last time we checked in here, including China’s credit woes, central banks cutting interest rates, and so on. More than one person believes that China has the capacity to blow way out of the water the subprime mortgage crisis the United States itself had to face some years ago now. The markets are still sleeping with volatility, but US Government Treasuries are still a safe bet, and the hope is that you still hold them and have come to realize the comfort they can provide. As for gold’s spike recently, just let it go, that’s sort of like entrusting your heart to the flashy half wit who can burn real bright but can also go up in flames with the twitch of a cocaine nose job.
What do we do with all of this? Well, primarily, we must understand that a well-balanced portfolio made up of passive index funds that agree with your true risk profile and a reasonable time horizon for your particular circumstances (sexy, right?) is better than the race horses you’ve concerned yourself with time after time. It doesn’t matter if high-frequency or algo or quant funds are causing the markets to go up and down, up and down. With a well-balanced lazy portfolio, you’d own dividend stock and bond index funds that would be paying you dividends while the prices of those investments go sideways, up and down, up and down, with the rises and falls in principal effectively canceling each other out over recent memory. In an up market, with a well balanced lazy portfolio, your stocks would be moving up more than your bonds moving down. In a down market, with a well balanced lazy portfolio, your stocks would receive some protection from a grave fall by your dividends and your bonds (and your 2% share in gold, if you just have to go there – there’s no performance consistency to rely on there, though). And in a “society is collapsing” scenario, your money and investments wouldn’t mean anything anyway, so don’t worry about that.
Again, where’s your perspective? Humans have created a system in which we can invest and not just gamble. At a casino, you don’t lay a bet down for 10 years out, or 5 years out, or 3 years out, you lay a bet down for a moment, or the night, or the time it takes for a March Madness basketball game to wrap up, and you can barely hedge your bets with most of the casino’s games anyway. Can you hedge the risk of losing each nickel you put into a slot machine before you pull the hammer at a casino? One-sided stock picks aren’t much different.
Understood, we humans are emotional, and we are drawn to the rush and the agony of it all. Even those of you who don’t think you have that problem, I’m guessing that there’s something that gets you going. (And hey, what’s the issue with that? We consider sociopaths to be unemotional, you’re not a sociopath, are you?) Don’t get me wrong, being emotional is good, like knowing about and wanting to feel joy when we feel pain; we wouldn’t understand the one without the other. But we tend to be emotional most or all of the time with our money, our finances. Marketers count on it. Investment pundits count on it. Banks count on it. Sales people count on it. Free yourself up to be emotional about something else, quit gambling and begin investing instead. Quit allowing yourself to be nudged every which way by your own head and the influences upon it. See a real way through the cloudiness that will continue to obscure the future.
What’s happening right now with the volatility and craziness is an opportunity to avoid putting any more dollars into an individual stock or other single short-sighted investment. Now is not the time to do that as your principal investment activity. If you’re going get serious about investing now, get to work on building and managing a portfolio, a complete passive or lazy portfolio. And then, frankly, reallocate your attention to all those other things you could (and maybe even should) be paying attention to instead.