“The only thing that doesn’t change, is change itself.”
I believe that when we came to this Earth, each of us was granted with a set of special gifts. Some are more obvious than others, but we all have our strengths and these are the cards we have been given to play with when we sit at the table. We can change a few, but the picture is pretty much the same.
One of my “gifts” is the ability to interpret and understand how systems work. I understand how patterns work together and how I can benefit from them. I discovered this talent when I was a kid as I didn’t have to study much. At first I thought it was related to a very strong memory, but I later noticed that I don’t really remember things, I understand them. This had struck me once again over the past few years while I crossed many investors discussing the stock market. Sometimes it was you from the blog by email, sometimes it was other bloggers or simply people I encountered during happy hour. Regardless of who they were, they all used the same language:
It’s different this time;
How, it is a risky market;
There is so much volatility these days;
Things are going to turn sour this summer;
Things are changing too fast now, it’s crazy times;
This is where my talent kicked-in; nobody seems to realize they’ve been saying the same thing over and over again. This is nothing new. I don’t have a long investing experience yet. I only started investing in 2003 giving me a short experience of 13 years. I’m still a teenage investor. However, I understand how this whole system works; everybody has something bad to say about the stock market all the time. No matter what time of the year or which big events just happened, most people are highly negative towards the market. I guess because bad news sells more than good. Because pain hurts more than happiness feels good. Because worrying is a stronger feeling than feeling content. For all these reasons, many say it’s never the right time to invest. It’s been 13 years that I’m 100% equity in my portfolio and I’ve heard over 13 very good reasons not to buy a single share.
Government printing money;
Housing market being ridiculous;
Fraud poisoning confidence on Wall street;
Greece going bankrupt;
All banks dying from their cancer;
The oil industry collapsing;
The Government shutdown;
Consumer debt level;
The end of growth;
China building ghost towns;
The end of oil on earth by 2020;
The world’s greatest recession since the Great Depression;
Hedge funds taking the market down due to high leverage strategies going south;
And I could go on and on and on…
Yet, since 2003, the S&P 500 total returns show 200%:
I wish I had the TSX total return as well, but I only have the TSX index showing +103%:
And during this time, the 5 year interest rate has never stopped falling:
I guess this is what we call a “safe investment”, one that will gradually but surely yield lower and lower, right? Hahaha! There is one thing that seems obvious to me when I look at the last graph: the three lines go down big time at one point or another, but only the red line (interest rate) stays low and doesn’t kick back in. It’s been 13 years of horror for “safe investors”. At the same time, those who were investing in risky markets with all the good reasons telling us that “this time is different” and that “volatility is very strong this year” have made some very good money.
All this to tell you one thing
There is one thing I wanted to tell you with this short story; volatility is part of the stock market, so forget about it. It’s a package; if you invest in the stock market, it’s going to move up and down. Stop telling me it’s the right time to buy or right time to sell. The right time to buy is when you have money to invest. The only reason to sell and not go back in the stock market is because you need to withdraw money from your investments to live. And this should be planned for accordingly. You can either live off your dividends or plan your withdrawals ahead of time so you are not stock in the middle of a storm. But there is no reason to leave the market because “something is happening” and it is “different this time”. These words should never be part of your vocabulary at anytime. Because the minute you want to guess the right moment to leave the market or to get back in, you open a pandora’s box of doubt and second guessing. If you want to play the market, you have to be right each time you leave and each time you go in. Seriously, if you find a way, make it a product and you’ll become the richest man on earth… but this won’t happen ;-).
So embrace volatility and smile at it. There is nothing else to do. It was always part of the market, it is part of the game and it will be like this forever ;-).
Spot on… there are a lot of people that do not get the power of volatility, especially when accumulating wealth. I have read some studies and did some calculations myself. As a monthly buyer, volatility is my best friend!
Systematic investing is definitely the investor’s best ally!
I largely agree Mike. We love volatility! When volatility breaks loose, we are the most active on the buy side of our investments. It creates opportunities for long term investors…..and even some traders.
I hope you are having a great week buddy
Volatility is just a door opening to opportunities 🙂
Couldn’t agree more with your volatility state of thought. Volatility is everywhere, it is inevitable, even in the stock market. The ones that are fed in fear will forever be in fear, without realizing opportunities of fear.
Love this quote!
“I’d be a bum on the street with a tin cup if the markets were efficient ”
– Warren Buffett
hahaha! very good one!
That’s cool to see you featured in the Globe and Mail this week! Hope it sends even more people your way to check out the blog
I saw a big peak in traffic on Friday and I didn’t understand why…then I saw the good news in the G&M 🙂