ALL in all.....a good week....that is totally overshadowed by the markets of the last couple of days. DOW year to date (-19.38%) DOW for the week +1.99% SP500 year to date (-23.64%) SP500 for the week +1.51% NASDAQ 100 year to date (-32.36%) NASDAQ 100 for the week +0.62% NASDAQ year to date (-31.91%) NASDAQ for the week +0.73% RUSSELL year to date (-24.19%) RUSSELL for the week +2.25% YES......every one of the above UP for the week....not that many investors are "feeling" it after the past couple of days. Yet another week in the can as the year steadily winds down and the markets run out of time to recover.
Hang onto your hats.....EARNINGS starts next week. AND the week after next.....the week of October 17......the BIG BANKS and all the other banks EARNINGS will hit in force. This should create some REALLY ERRATIC markets over the next month or two.....for many individual companies. It will be a true test for individual investors as well as the markets. A good test of individual investor RISK TOLERANCE.
piece of cake, boss. you know it got this long-term investing game figured out . edit: in response to post 12718
If you want the stock market rewards....you have to be willing to take the pain. There Will Be Drawdowns https://compoundadvisors.com/2022/there-will-be-drawdowns (BOLD is my opinion OR what I consider important content) "For the first time in over a decade, the S&P 500 is down more than 20% from its prior high on a monthly closing basis (total returns including dividends). The current drawdown, at nine months and counting, is now the longest we’ve seen since the 2007-09 bear market. Volatility has been rising all year and now stands well above its historical average. The number of trading days in which the S&P 500 has fell 1% or more (50) is already at the highest level we’ve seen since 2009, and there’s still three months to go. By now, the litany of reasons for the market rout are known to just about everyone: war, inflation, tightening monetary policy, and a global economic slowdown. All news seems to be bad news and as one might expect, forecasts of impending doom are running rampant. During such times, it’s hard to imagine stocks ever going up again. Which is undoubtedly leading many investors to either panic and sell or hold off on investing new money until the “dust settles.” In theory, their reasoning is sound: by waiting for the market “to bottom,” they’ll avoid further downside and be able to buy back in at lower prices. But in practice, this strategy almost always fails. For if they’re scared to invest today, what are the odds that they will be buyers if prices go down more and the news only gets worse? Not very good. Based on the evidence of investor returns trailing fund returns across all categories, they’re much more likely to do the opposite. The 1.73% annualized “behavior gap” over the last 10 years is a direct result of investors buying high and selling low, again and again. Data Source: Morningstar The main problem with trying to pick a bottom during a bear market is that no one knows where the bottom will be, despite the many predictions you hear in the financial news each day. But if you look at the track record of those doing the predicting, you’ll soon find that many of the same people calling for a crash today were forecasting higher prices at the start of the year, and following their forecasts over the years would have led to disastrous performance. Which is why when it comes to the stock market, there’s only one prediction you should ever pay attention to: there will be drawdowns. Though their duration and magnitude will vary from year to year, drawdowns are the one constant in markets. If you can accept that and be mentally prepared for them when they come, you can build considerable wealth over time. And importantly, you can do so without the need to time the market by picking tops and bottoms. To be sure, stocks can still go lower in the short run, and no one should be the least bit surprised if they do. We’ve seen a number bear markets with deeper drawdowns than today (2007-09, 2000-02, 1973-74 to name a few) which means there’s no valid argument suggesting the market can’t fall further. But with every tick lower, stocks become cheaper, and the risk/reward for the long-term investor improves. If you’re a net saver and your time horizon is measured in decades instead of days, a 20% drawdown like we’re in today should be viewed as an opportunity to reinvest dividends or add new capital at lower prices. When it comes to the stock market, drawdowns are inevitable. Without them, there would be no forward progress for you can’t have upside without occasional downside. Two steps forward, one step back, repeated throughout history has led to incredible gains for investors over time. It’s how you react to those backward steps that makes all the difference." MY COMMENT I have NEVER seen any market timer......that claims to be beating the markets on a long term basis.... or other trader post ALL trades and moves in real time online for a significant number of consecutive years. I have also NEVER seen any short term trader post their actual return....AFTER......paying income taxes at the normal bracket rates for whatever gains they have, their expenses of trading, equipment, computers, etc, etc, etc. Not that it is impossible.....but.....it is HIGHLY unlikely that ANYONE can beat the SP500 over a longer time period with market timing or short term trading. SO......that leaves people like me with one strategy that seems to actually work....LONG TERM INVESTING. AND....the reality of long term investing is.....bear markets happen from time to time. Fortunately the markets are POSITIVE about 70% of the time year to year. To capture those gains and have the PROBABILITIES in your favor.....it requires being invested. That means having to put up with the pain once in a while. So that is what I do.
Good post and information in this. It is often said the best plan is one that you can stick with. The emotional part is what can get many investors. Especially when the losses just keep grinding away over long periods. People begin to lose hope and throw in the towel. Then at some point, they have to decide when is it "safe" to return. That alone can be stressful and many miss important gains on the way back out of the hole. Before long one is in one thing and out of another. Before you know it, 5- 10 years have passed and investors have been chasing their tail with meager or little return. Find out what works for you and stay with it. Design it so you can stay with it through the good and the bad. A reasonable, thought out plan will help one ignore almost every single bit of short term noise out there. It simply will not matter to those who have set up a sound long term plan.
While out and about this weekend I had the opportunity to attend a couple of events. During my time there I also spent some time wandering in and out of small businesses and small shops. Just basically passing time before attending the planned event. I spent a little bit of money here and there at some of the places. Most of the owners acknowledged a bit about inflation and supply issues, but admitted they had fared much better than expected, at least so far. They all seemed upbeat about making adjustments and conveyed they still had strong customer participation at this point. All of the shops and dining locations were very busy. These were not chain type retail, but small individual business. It was nice to see and hear the upbeat attitude of the businesses. I left there rooting for all of them.
For anyone that thinks the FED is going to PIVOT....they are not. Read it if you wish......they are VERY CLEAR. Fed officials remain steadfast: Hike rates and hold them there https://finance.yahoo.com/news/fed-officials-remain-steadfast-rate-hikes-122927740.html HERE is a preview of the article: "Fed officials cautioned markets against hoping for rate cuts next year by sending the unified message that they intend to hike rates and hold them there, even if confronted with signs of a weakening economy."
Read the Fed article this morning. Those half a million dollars homes at 5+% interest is going to put a dent in the industry as a whole. Time to pay the Lady for the free ride. Once interest rates are 10+% and corporations start getting the tax bills, my guess is they look for other cost effective methods. U.S. has borders, corporate funds do not.
We have a BIG....action packed.....week this week for us long term investors to sleep through. CPI sets the stage for Fed's November hike, banks report for Q3: What to know this week https://finance.yahoo.com/news/stock-market-week-ahead-september-cpi-bank-earnings-195249849.html (BOLD is my opinion OR what I consider important content) "An already strained U.S. stock market will be further challenged in the week ahead as the government publishes a key inflation report and megabanks kick off what’s likely to be a murky earnings season. The highly-awaited Consumer Price Index (CPI) takes top billing in coming days, with third-quarter financials from the country’s largest banks – JPMorgan (JPM), Citi (C), and Wells Fargo (WFC) – following suit in the line of importance. A fresh CPI reading on Thursday is expected to dictate how much more aggressive the Federal Reserve will get with its interest rate hiking plans, which are already the most combative in decades. The consequential economic release will hold even greater significance after the Labor Department’s September jobs report on Friday suggested officials have further room for increases. The U.S. economy added 263,000 jobs last month, a moderation from the prior print but still a robust hiring figure, as the unemployment rate fell to 3.5%. The weaker-than-expected decline in payroll gains dashed investor hopes that FOMC members might shift away from monetary tightening sooner than anticipated. That reality sent stocks spiraling on Friday. The S&P 500 (^GSPC) plunged 2.8%, the Dow Jones Industrial Average (^DJI) shed 630 points, and the Nasdaq Composite (^IXIC) led the way down at a decline of 3.8%. The major averages managed to end higher for the week after three straight down weeks after retaining some gains from a transient rally the first two trading days of October. “Persistent strength in hiring and a drop in the unemployment rate, in our view, mean the Fed is unlikely to pivot in the direction of a slower pace of rate hikes until it has more clear evidence that employment growth is slowing,” analysts at Bank of America said in a note on Friday, adding that the institution expects a fourth 75-basis-point rate increase in November. And this week’s inflation reading could corroborate such a move next month. According to Bloomberg forecasts, the headline consumer price index for September is expected to show a slight moderation on a year-over-year figure to 8.1% from 8.3% in August, but an increase to 0.2% from 0.1% over the month. All eyes will be on the “core” component of the report, which strips out the volatile food and energy categories. Economists surveyed by Bloomberg project core CPI rose to 6.5% from 6.3% over the year but moderated to 0.4% monthly from 0.6% in August. Marginal fluctuations in the data have not been reassuring enough to Federal Reserve members that they can step away from intervening any time soon. Speaking at an event in New York last week, Federal Reserve Bank of San Francisco President Mary Daly called inflation a “corrosive disease,” and a “toxin that erodes the real purchasing power of people.” Elsewhere in economic releases, investors will also get a gauge of how quickly prices are rising at the wholesale level with the producer price index, or PPI, which measures the change in the prices paid to U.S. producers of goods and services; a reading on how consumer spending is faring amid persistent inflation and slowing economic conditions with the government’s retail sales report; and a consumer sentiment check from the University of Michigan closely watched survey. Meanwhile, bank earnings will set the stage for a third-quarter earnings season expected to be ridden with economic warnings from corporate executives about the state of their businesses, slashed earnings per share estimates across Wall Street, and generally milder results as price and rate pressures weighed on companies in the recent three-month period. Results from JPMorgan, Citigroup, Wells Fargo, and Morgan Stanley are all on tap for the coming week and will be followed by Goldman Sachs (GS) and Bank of America (BAC) the following week. Banks typically benefit from central bank policy tightening, with higher interest rates boosting their net interest income (the bank’s earnings on its lending activities and interest it pays to depositors) and net interest margins (calculated by dividing net interest income by the average income earned from interest-producing assets.) However, challenging market conditions that have dealt a blow to dealmaking activity and general macroeconomic uncertainty are poised to offset higher net interest income. Analysts at Bank of America project earnings growth to slow across banks and brokers to 2.0% year-over-year in the third quarter from 5.9% in the second and 7.7% in the third, per bottom-up consensus estimates, per a recent note. However, that drop pales in comparison to expectations for sectors outside of financials — with the exception of the energy sector — according to BofA. Earnings growth in those areas “is expected to dip well into the negative territory,” the bank warned in a note, with expectations for growth of -4.2% year-over-year in the third quarter, down from -1.3% in the second quarter." "Economic Calendar Monday: No notable reports scheduled for release. Tuesday: NFIB Small Business Optimism, September (91.8 expected, 91.8 during prior month); Monthly Budget Statement, September (-$219.6 billion) Wednesday: MBA Mortgage Applications, week ended Oct. 7 (-14.2% during prior week); PPI excluding food and energy, year-over-year, September (7.3% expected, 7.3% during prior month); PPI final demand, month-over-month, September (0.2% expected, -0.1% during prior month); PPI excluding food and energy, month-over-month, September (0.3% expected, 0.4% during prior month); PPI excluding food, energy, and trade, month-over-month, September (0.2% expected, 0.2% during prior month); PPI final demand, year-over-year, September (8.4% expected, 8.7% during prior month); PPI excluding food, energy, and trade, year-over-year, September (5.6% during prior month); FOMC Meeting Minutes, September 21 Thursday: Consumer Price Index, month-over-month, September (0.2% expected, 0.1% during prior month); CPI excluding food and energy, month-over-month, September (0.4% expected, 0.6% during prior month); Consumer Price Index, year-over-year, September (8.1% expected, 8.3% during prior month); CPI excluding food and energy, year-over-year, September (6.5% expected, 6.3% during prior month); CPI Index NSA, September (296.417 expected, 296.171 during prior month); CPI Core Index SA, September (296.950 during prior month); Initial jobless claims, week ended Oct. 8 (225,000 expected, 219,000 during prior week); Continuing claims, week ended Oct.1 (1.361 during prior week); Real Average Weekly Earnings, year-over-year, September (-3.4% during prior month) Friday: Retail Sales Advance, month-over-month, September (0.2% expected, 0.3% during prior month); Retail Sales excluding autos, month-over-month, September (-0.1% expected, -0.3% during prior month); Retail Sales excluding autos and gas, month-over-month, September (0.3% during prior month); Retail Sales Control Group, September (0.0% during prior month); Import Price Index, month-over-month, September (-1.1% expected, -1.0% during prior month); Import Price Index excluding petroleum, month-over-month, September (-0.2% during prior month); Import Price Index, year-over-year, September (7.8% during prior month); Export Price Index, month-over-month, September (-1.2% expected, -1.6% during prior month); Export Price Index, year-over-year, September (10.8% during prior month); Bloomberg Oct. United States Economic Survey; Business Inventories, August (0.9% expected, 0.6% during prior reading); University of Michigan Consumer Sentiment, October preliminary (58.8 expected, 58.6 during prior month)" "Earnings Calendar Monday: No notable reports scheduled for release. Tuesday: AZZ (AZZ), Pinnacle Financial Partners (PNFP) Wednesday: PepsiCo (PEP), Duck Creek Technologies (DCT) Thursday: BlackRock (BLK), Delta Air Lines (DAL), Progressive (PGR), Walgreens Boots Alliance (WBA), Commercial Metals (CMC), Taiwan Semiconductor (TSM) Friday: JPMorgan (JPM), Citigroup (C), Morgan Stanley (MS), PNC (PNC), U.S. Bancorp (USB), UnitedHealth (UNH), Wells Fargo (WFC)" MY COMMENT A KOLLER week for the markets and the economy. MUCH potential for anything to happen. CPI and PPI will be the BIG economic news. Of course as shown in the above article the media is STILL flogging the old line about the FED perhaps doing a pivot. It simply.....does NOT matter.....what the CPI and PPI are.....the FED is going to raist by 0.75% in November and will.......as they have told us MANY TIMES lately....continue next year and hold the rates high for a substantial time. Earnings will be the other big event this week....but.....they earnings that really count dont happen till Friday......so.....the week could be WON or could be a LOST CAUSE....before the earnings happen on Friday. The BIG news for....."ME".....with the CPI this week everything will be in place for Social Security to release the cost of living increase for 2023. I want my government money.....and I want it now. Well....make that in 2023.....not now. I am expecting the cost of living raise to be between about 8.5% and 9%.
Yes, a week of noise ahead. The amount of time they spend on this idea of a pivot is pointless and dumb. Maybe they continue with it to drive clicks and attention, maybe they do it to fan the flames of uncertainty further for those who are reactionary to such "news." It is a good example of how they ignore the reality and just broadcast what they want to drive their own personal narrative. Just like they do with most things today. I figure this week will be like many others we have had. Whatever it is, there will be an over reaction to it one way or the other. It's just the cycle we are in right now. The CPI/PPI will be minor on either side of worse than expected or improvement. Not enough time has passed to swing it significantly either way. Now, the market reaction to it will respond nutty either way. All a guess on my part. Nothing this week will move the direction of my long term plan. Long term investing is boring, but successful if you can stick with it.
Since we have NOW lost the earlier market gains and have gone RED......and since the markets SUCK lately......I will post something about the art/antique markets. Anyone reading this thread knows that I am art and antique collector. I often buy and sell at national and regional auctions. This is an EPIC FAIL....but good news for the owner. Art Expert Fired After Valuing $8M Chinese Vase at $1,950 https://www.newsmax.com/newsfront/chinese-vase-art-undervalued/2022/10/09/id/1091121/ "A prestigious auction house in France has fired an art expert after valuing a Chinese vase 4,000 times under its sale price, The Guardian reported. "The expert made a mistake. One person alone against 300 interested Chinese buyers cannot be right," Jean-Pierre Osenat, the auction house owner, told The Guardian. "He was working for us. He no longer works for us. It was, after all, a serious mistake." A woman from the United Kingdom sold the vase to Osenat after clearing her mother's house and decided to part ways with it. The vase was described as a "Large TIANQIUPING porcelain and polychrome enamel vase in the style of the blue-white with globular body and long cylindrical neck, decorated with nine fierce dragons and clouds." The expert who analyzed the vase regarded it as a 20th-century decoration that couldn't be worth more than $1,950. But the auction house soon realized this couldn't be after a pre-auction showing flooded with interested buyers, some of which held "lamps and magnifying glasses" up inspecting the piece. "There were so many registrations we had to stop them," Osenat said. "At that point, we understood something was happening." The seller was shocked when the vase finally sold for its final bid. "It's as if she had won the EuroMillions," Osenat commented. As the director of the auction house's Asian Arts department, Cédric Laborde, put it, it's unclear why the vase sold for as much as it did. "We don't know whether it [the vase] is old or not or why it sold for such a price. Perhaps we will never know," Laborde said. Still, the antique expert who gave the original low valuation stands by the original assessment." MY COMMENT Of course....other than the person fired.....everyone came out ahead. The consignor got a price of $8MILLION.....and....in spite of being incompetent....the auction house got a HUGE buyers and sellers premium, probably hundreds of thousands of dollars. Stories like this are very good for the auction business. They will now be flooded with people thinking that they have the next big time Chinese vase. Most will turn out to be Republican era vases with old marks on them.....but....once in a while a real older one will turn up. The Republican era in China is generally the early 1900's. Items from that era used to be ignored....but....now with buyers in China looking for historic items there has been a big jump in many Republican era items. No...no into the millions......but from the hundreds into the thousands.
So....back to the "normal" "stuff". The Trouble With Projecting Fed Policy From September’s Jobs Data Central bankers will always do what they do when they do it. https://www.fisherinvestments.com/e...ojecting-fed-policy-from-septembers-jobs-data (BOLD is my opinion OR what I consider important content) "After a strong start, stocks retreated to close the week, with the S&P 500 down -2.4% as we type early Friday morning. The culprit for the day’s selloff, according to most accounts, was September’s US employment situation report, which showed an unexpected dip in the unemployment rate and nonfarm payrolls rising by 263,000.[ii] A few outlets noted that the pace of hiring has continued to slow—from 315,000 in August and 537,000 in July, and an average of 493,000 in the 12 months prior to Friday’s report. Yet given jobs growth remains quick, most outlets quickly dismissed that: Yeah but the Fed still needs to do more was the common theme, implying we will eventually get to a point where the Fed must kneecap the economy in order to tame the inflation beast, lest it risk allowing a hot job market to fuel a wage-price spiral. We don’t buy this thesis, and we think investors would do well to understand why. Conventional wisdom—and the Fed’s dual mandate of seeking maximum employment with stable, low inflation—hold that the job market drives wage growth, which drives inflation. Ergo, the Fed should raise interest rates to cool hiring in an inflationary environment like the present and cut them to spur hiring when unemployment is up. Nobel laureate Milton Friedman shattered this myth decades ago, and simple logic does the same today. He showed inflation drives wage growth, not the other way around. Think about it from a worker’s perspective: When are you most apt to hound the boss for a raise? When your rent hasn’t gone up for years, food prices are stable and gas is reasonable? Or when you are suddenly faced with a 10% premium to renew your lease, a newly astronomical grocery bill and much higher fuel prices? Employers understand this too and factor recent inflation into their wage and salary offers. If it were the other way around—if companies randomly raised wages, then prices, then wages, then prices—then inflation would be a merry-go-round that never stops and would start for basically no reason. Money supply growth, supply chain issues and all of the things that have actually driven inflation this year wouldn’t matter. Secondly, there just isn’t much the Fed can do right now, in a practical sense, to affect hiring noticeably. Traditionally, it would try to control money supply growth by using its benchmark interest rate to influence the yield curve—Fed controlling the short end, market controlling the long end. The gap between the two (long rates minus short) would influence banks’ net interest margins on new loans, as banks generally borrow at short rates and lend at long rates. Banks aren’t charities, so the potential profit margins would influence their willingness to lend at borrowers’ varying degrees of creditworthiness. For good measure, the Fed would also raise or lower reserve requirements to give banks a shorter or longer leash. In a fractional reserve banking system like ours, banks create a large share of new money through lending, so enabling more lending would boost the money supply, which in turn would driver faster growth and more hiring. Disabling lending would slow money supply growth, cooling the economy and tamping down job growth. The relationship between the quantity of money and the amount of goods and services available for it to chase would determine inflation. That last bit still holds, in our view. But the Fed has surrendered most of the control over money supply it had in the past. American banks hold nearly $18 trillion in deposits and have nearly $11.7 trillion in outstanding loans.[iii] Fed head Jerome Powell and the Federal Open Market Committee also decided to scrap all reserve requirements in 2020, so with such a wide gap between deposits and loans, banks could lend hand over fist if they wanted to—regardless of recent Fed hikes. Yes, the Fed may presently set its benchmark overnight rate at 3.0 – 3.25%, but that rate chiefly affects the rate at which banks borrow from one another to meet overnight liquidity requirements. Because of that astronomical deposit surplus, banks aren’t paying the fed-funds rate to get money to lend out. Their deposit base seems like more than enough funding, and that base costs an average 0.17%.[iv] So as long rates rise, lending gets more profitable—and lending has accelerated this year. So whatever is happening in the job market likely has pretty little to do with the Fed. Now, if you read this and conclude the Fed’s efforts to fight inflation must be hopeless, well, we agree in principle. But would prefer “feckless” to “hopeless,” because the good news is that inflation appears likely to cool regardless. Lower commodity prices are starting to feed into the economy, transit costs are down and shipping times are shortening. Businesses are finally able to fill order backlogs, which should increase the supply of goods available for sale. Broad money supply growth is back at pre-pandemic rates. All of the weirdness of the past two and a half years is getting further into the rearview mirror. Of course, despite all the speculation running rampant in the punditry, no one knows what September’s jobs data mean for future Fed hikes. The Reserve Bank of Australia’s smaller-than-forecast 0.25 percentage point hike on Monday just finished proving, once again, that central banks will do what central banks will do based on their view of incoming data, and analysts won’t know which data they emphasize and which they don’t—much less how the cabal of policymakers will interpret those data.[v] Maybe Powell & Friends see the slower average pace of hiring and August’s 10% drop in job openings as a forward indicator that their policy is working, September’s hiring numbers be damned.[vi] No one knows. Hence, to us, Friday’s move seems much less about the actuality of what the Fed may do and much more about sentiment. The notion of a heavy-handed Fed crippling an inflation-ridden economy has weighed heavily this year. But, in time, as inflation gradually begins to resolve on its own, the reality of a feckless Fed that lacks the power to materially sway the economy for good or ill should bring palpable relief. It isn’t exciting or some immediate catalyst, but rather, the sort of thing that is a subconscious, non-realization that markets see even if humans don’t outright acknowledge it. Think of it as a general sense of huh looks we got through all that after all. Equally important, this all holds even if the US officially enters a recession, as stocks look 3 – 30 months out. The S&P 500’s bear market this year would be consistent with stocks pre-pricing a recession, giving the actual declaration of one precious little power over stocks at this point. So we think investors are better off looking forward, as markets do, to the likely better times ahead." MY COMMENT Yes....the banks especially the big banks LOVE the higher interest rates. They can rake in money simply by lending at higher rates......the old time business model of banks. The current inflation is definitely the result of government spending and the slow to resolve impact of closing the economy. BOTH causes......will probably linger for at least 1-2 more years. the BIG UNKNOWN is how the economic shut down will PERMANENTLY change our economy and labor systems. BUT....looking forward....there WILL be better times ahead. There ALWAYS are.....it is just a matter of getting there.
SO......with the markets seeming to steadily and relentlessly dropping.....the major problem for many investors will be FEAR. FEAR is the natural consequence that flows from self evaluated RISK TOLERANCE when markets drop and seem to crash. Fear Itself How one emotion can change how you see the world. https://www.morningstar.com/articles/1116177/fear-itself (BOLD is my opinion OR what I consider important content) "Fear can change how you perceive risk, skewing your mental cost/benefit analyses and influencing asset allocation. As investors we cannot eliminate risk entirely, so we must instead learn to conquer—or at least manage—our fears. Emotion and Risk Perception Fear has been repeatedly shown to increase perceived risk and risk aversion. Experimenters in various settings have observed that inducing fear in one group results in those people overestimating the likelihood of negative future outcomes when compared with a control group. What’s more, the fear we feel does not need to be related to the outcome we are thinking about. Reading newspaper clippings of tragic events led to people overestimating the likelihood of negative events happening in completely different domains of life (compared with reading about neutral events). In another study, simply showing people pictures of fearful facial expressions increased the expectation of negative events when compared with neutral facial expressions. These psychology experiments highlight the way our minds operate in the presence of fear. When we are afraid, we tend to believe that negative events are more likely to happen than we did before, and we can become more sensitive to losses in the moment. “Individuals who feel anxious tend to focus on the potential negative outcomes of future events and believe that those outcomes are more likely to occur.” —Alison Wood Brooks, 2014 All of this matters to investors because fear can alter the way we weigh trade-offs by changing our estimation of the relative costs and benefits. If you believe a stock market crash is very likely in the next six months, you might feel justified in deviating from your planned investment strategy to avoid what you see as very probable losses. The problem is that your expectation of events may be skewed by fears that have nothing to do with market fundamentals. Perceived Risk Is More Motivating Than Objective Risk One cross-country study of investors found that people in different countries had very different beliefs about the riskiness of investment, and their asset allocations reflected these beliefs. In the United States, for example, people expected high returns for what they saw as relatively low risk when investing. Conversely, investors in the Netherlands perceived the same investments to be very high risk and expected relatively low returns. As you would expect, the US investors had far more aggressive asset-allocation strategies than those in the Netherlands. Researchers concluded that culture may have a larger effect on asset allocation than objective risk analysis. Other studies demonstrate that when people’s feelings about risk change, their investment behavior changes accordingly, but when objective numerical risk evaluations change, behavior is not as strongly affected. This effect seems to be more pronounced when we believe that market prices are affected by other people rather than by objective factors. In a simulated stock market, people who were induced to feel fear sold sooner if they believed that the market price was peer-generated, but not if they believed the stock price was computer-generated. This may help explain why people who believe the market is very efficient are less inclined to move their money in the face of volatility than those who believe market prices are set by the fleeting whims of the herd. Coping With Fear It’s normal to experience fear when faced with uncertainty or an uncontrollable threat. In such situations we may be motivated to take action or seek out more information to reduce uncertainty or eliminate the threat, thus resolving the feeling of fear. Here we face another obstacle because risk communications themselves can induce fear. Our perceptions of risk can be affected by aspects of risk information itself, and by contextual clues such as color, graphics, and sound effects. Marketers, politicians, and pundits use this to their advantage when crafting messages (often enlisting behavioral scientists to assist) so as to increase the likelihood of action on the part of the consumer. Easy-to imagine scenarios and stories can be effective fear-inducing strategies. Graphs and pictures are more emotionally persuasive than numbers, and moderate fear appeals combined with the suggestion of a desired action can result in stronger intentions to act than factual information alone. Information is valuable, and we must do our due diligence as investors and research the products and services we buy. However, we also need to be wary of how the presentation of investment information makes us feel, and avoid doomscrolling and sensationalism whenever possible. Risk Is Unavoidable. Panic Is Optional. If you are an investor, you cannot entirely eliminate risk. Yes, you can (and should) diversify your investments, research your holdings, and select a strategy that suits your overall tolerance for risk. Even so, if you have any “skin in the game,” you will likely feel anxious from time to time. Learning to manage fear when it surfaces can help you keep your head when others panic. Here are a couple of tips for coping with fear. Future pieces will dive deeper with more-practical strategies. Anxiety reappraisal. I’ve written in the past about the physiological similarities of anxiety and excitement, and how the technique known as anxiety reappraisal can help improve decision-making in stressful situations. You can learn more about that here. Silence the talking heads. Since the delivery of information can affect how you feel (and thus how you view risk) there are times when we simply need to shut off the TV and walk away. There are many who earn their living by making the mundane sound important. News outlets must produce engaging content for an increasingly impatient audience to fill a 24-hour day, every day. The pressure to make everything into a crisis is heavy upon them, but you don’t have to carry the weight of their messages on your shoulders. Talk with a trusted financial professional. If you have a financial advisor, ask them to help you get a big-picture perspective. Often the crisis du jour is just a blip on an otherwise upward trend. Crashes do happen, as do rebounds. Perspective is key, and it can often be helpful to have a sympathetic but dispassionate person look at our situation to help us see more clearly. Summing It Up Fear has the power to change our perceptions of risk, skewing what we think is probable toward the negative. Because fear and uncertainty are uncomfortable, we can be drawn into actions to try to reduce uncertainty. This might take the form of research and information-seeking. Research is great, but we need to be watchful of how the information we ingest is presented because the format, language, and tone can itself magnify our fears. Since risk in unavoidable in investing, we’d be wise to learn and practice emotional coping skills to combat the potential negative effects of fear on our investment behavior." MY COMMENT FEAR is a very difficult emotion for investors. EVERY investor thinks that they have a good strategy and are confident in what they buy. When REALITY hits......and real money....often life savings.......are being whittled away by a down market.....emotion and fear are very difficult to manage. The BEST single way to avoid the impact of EMOTIONAL INVESTING......turn off the TV. STOP reading all the financial media. Just get on with your life and IGNORE it all. Over the long term you will be fine. The BIG PROBLEMS for many investors stem from overestimating RISK TOLERANCE........thinking that you are a long term investor when you are ACTUALLY investing shorter term money.......fooling yourself into investing in stocks or funds that are NOT RATIONAL or REALISTIC.
To continue with my little theme of EMOTION and RISK. Expectations (Five Short Stories) https://collabfund.com/blog/five-short-stories/ (BOLD is my opinion OR what I consider important content) "David Cassidy seemed to have the best life you could imagine. A teenage heartthrob who sold out arenas and was so popular his shows turned into stampede risks. From the outside it looked like as interesting and lucky a life anyone could hope for. Everyone loved him. He was rich. He was on top of the world. But after he died in 2017, Cassidy’s daughter revealed that his last words were, “So much wasted time.” It’s never as good as it looks. Apollo 11 was the first time in history humans visited another celestial body. You’d think that would be an overwhelming experience – literally the coolest thing any human had ever done. But as the spacecraft hovered over the moon, Michael Collins turned to Neil Armstrong and Buzz Aldrin and said: It’s amazing how quickly you adapt. It doesn’t seem weird at all to me to look out there and see the moon going by, you know? Three months later, after Al Bean walked on the moon during Apollo 12, he turned to astronaut Pete Conrad and said, “It’s kind of like the song: Is that all there is?” Conrad was relieved, because he secretly felt the same, describing his moonwalk as spectacular but not momentous. Most mental upside comes from the thrill of anticipation – actual experiences tend to fall flat, and your mind quickly moves on to anticipating the next event. That’s how dopamine works. If walking on the moon left astronauts underwhelmed, what does it say about our own earthly goals and expectations? Thirty-seven thousand Americans died in car accidents in 1955, six times today’s rate adjusted for miles driven. Ford began offering seat belts in every model that year. It was a $27 upgrade, equivalent to about $190 today. Research showed they reduced traffic fatalities by nearly 70%. But only 2% of customers opted for the upgrade. Ninety-eight percent of buyers chose to remain at the mercy of inertia. Things eventually changed, but it took decades. Seatbelt usage was still under 15% in the early 1980s. It didn’t exceed 80% until the early 2000s – almost half a century after Ford offered them in all cars. It’s easy to underestimate how social norms stall change, even when the change is an obvious improvement. One of the strongest forces in the world is the urge to keep doing things as you’ve always done them, because people don’t like to be told they’ve been doing things wrong. Change eventually comes, but agonizingly slower than you might assume. When the Black Death plague entered England in 1348, the Scots laughed at their good fortune. With the English crippled by disease, now was a perfect time for Scotland to stage an attack on its neighbor. The Scots huddled together thousands of troops in preparation for battle. Which, of course, is the worst possible move during a pandemic. “Before they could move, the savage mortality fell upon them too, scattering some in death and the rest in panic,” historian Barbara Tuchman writes in her book A Distant Mirror. There’s a powerful urge to think risk is something that happens to other people. Other people get unlucky, other people make dumb decisions, other people get swayed by the seduction of greed and fear. But you? Me? No, never us. False confidence makes the eventual reality all the more shocking. Some are more susceptible to risk than others, but no one is exempt from being humbled. Dr. Dan Goodman once performed surgery on a middle-aged woman whose cataract had left her blind since childhood. The cataract was removed, leaving the woman with near-perfect vision. A miraculous success. The patient returned for a checkup a few weeks later. The book Crashing Through writes: Her reaction startled Goodman. She had been happy and content as a blind person. Now sighted, she became anxious and depressed. She told him that she had spent her adult life on welfare and had never worked, married, or ventured far from home – a small existence to which she had become comfortably accustomed. Now, however, government officials told her that she no longer qualified for disability, and they expected her to get a job. Society wanted her to function normally. It was, she told Goldman, too much to handle. Every goal you dream about has a downside that’s easy to overlook." MY COMMENT The best way to deal with market emotions and fear is simply through the benefit of past experience. Your first BEAR market will be harder to navigate than your sixth one. BOTH will SUCK.....but once you have the long term experience of investing in various types of markets.....you will be much better prepared to simply sit and wait for the markets to recover and move on. A critical component of any investing plan is the ability of the investor to be CLINICAL and RATIONAL. We see a lot of irrational investing behavior today. Meme stock are the perfect example. Keep in mind.....you dont have to reinvent the wheel.....you dont have to swing for the fences. The PROVEN methods of generating market returns are well known and out there for anyone to find. Unfortunately....the human brain and human behavior....much of it based in genetics......is very difficult for many investors to avoid.
And to continue. The Witch of October Is Here: Remember Short-Term Pain = Long-Term Progress https://blogs.cfainstitute.org/inve...-remember-short-term-pain-long-term-progress/ (BOLD is my opinion OR what I consider important content) "The month of October strikes fear in the hearts of many Wall Street veterans — and for good reason. Over the last 123 years, 7 of the 10 worst days in US stock market history occurred during this seemingly haunted 31-day stretch. But there’s nothing supernatural about these October scares: They are the remnants of the 19th century agricultural financing cycle. During the 1800s, farmers harvested and shipped their crops to market in the fall, paying for the operation with large withdrawals from their local banks. These banks, in turn, withdrew funds from larger New York City banks and trusts to replenish their reserves, which made Wall Street financial markets especially vulnerable to panics. Even after the United States transitioned to an industrial economy and re-established a central banking system in the early 1900s, the memories of past Octobers seem to have conditioned investors to erupt in panic out of habit. October 2022 may be just the latest manifestation. Costs of Closet Tactical Asset Allocation Panic is the mortal enemy of long-term investors, especially in volatile markets, but that does not mean that we should sit idly by in the face of another October scare. At times like these, the late David Swensen‘s observation in his classic Unconventional Success is worth remembering: “Perhaps the most frequent variant of market timing comes not in the form of explicit bets for and against asset classes, but in the form of passive drift away from target allocations.” Many investors fail to heed this advice at the very moments when it is most valuable. Instead, they let their gains ride in bull markets and then freeze up when markets descend into bear territory. This is precisely the insidious form of tactical asset allocation referenced by Swensen. But history shows this is never wise. For every savant who successfully traverses the treacherous macroeconomic currents, many more suffer financial ruin while making the attempt. Failure to rebalance may not be ruinous, but it will almost certainly drag down long-term returns. Dow Jones Industrial Average: 10 Worst Trading Days: Date One-Day Decline 19 October 1987 -22.6% 28 October 1929 -12.8% 29 October 1929 -11.7% 18 December 1899 -8.7% 14 March 1907 -8.2% 26 October 1987 -8% 15 October 2008 -7.9% 18 October 1937 -7.8% 1 December 2008 -7.7% 8 October 2008 -7.3% Source: Dividend.com So, why is such tactical asset allocation so common among pension funds, foundations, endowments, and other institutional investors? Since many are advised by non-discretionary investment consultants who lack the authority to rebalance portfolios, they simply neglect to advise their clients to do so. But trustees need to take the initiative and ensure that they follow through on rebalancing during times like these. Short-Term Pain and Long-Term Gain In Principles, Ray Dalio advises readers to seek painful feedback so that they can confront their deficits and attain the insight necessary to eliminate them. He often repeats the mantra: Pain + Reflection = Progress. Economic events follow a similar principle. Today’s economic pain will likely intensify in the coming months, but that doesn’t mean that we suffer needlessly. The mistakes of the past must be corrected. Elevated inflation has persisted for too long, and re-establishing price stability is absolutely essential to ensure future economic prosperity. We learned this in the 1980s. There is no need to learn it again in the 2020s. We have to break the back of inflation, and while that will be painful, it will be worth it. Today’s hardships will not be for naught. After the recession of 1981 and 1982 subsided, the US economy came back stronger. Fueled by extraordinary technological innovation, the country went on to enjoy two decades of economic prosperity. The past two and a half years have had plenty of financial scares. We may see more this October and in the months ahead. But when it passes, we will breathe freely again. In the meantime, we need to steel our nerves, rebalance our portfolios, and trust that the pain we suffer now will be rewarded in the future." MY COMMENT In the end.....ALL INVESTING IS PERSONAL. "YOU" have to do what is right for you. It is that simple.......even if it means getting out of the markets or totally revamping how you think about investing. Those of us that lived and invested through the late 1970's and early 1980's understand that once in a lifetime an economic event can last for years. We could be in such a time right now. What we are going through right now could last for another 1-2 years. Over that time there will be rallies and over time the market drops will get less and less extreme as the markets are simply WORN DOWN. I keep reminding my KIDS that the current markets are a GOLDEN TIME for them as investors. They are in their mid 30's to early 40's.....they have decades of investing ahead of them. The longer this bear market lasts......and.....the more they are able to get invested during this time.....the MORE THEY WILL PROFIT....eventually. They, and their spouses, are PLOWING MONEY into the markets.......the SP500 and the BIG CAP ICONIC companies. I was looking at my account history the other day. It reflects a STEADY history of DIVIDENDS and CAPITAL GAINS being reinvested back into the markets.....at the current LOW PRICES. It was good to see. A reminder of how you significantly COMPOUND your money......compliments of a bear market.
OK.....I have been ignoring the markets. Nothing good going on today.....the ultimate short term time span. Same old issues.....same old short term market action.
OK....as usual I did my mid morning "look" at my primary account. I ACTUALLY have two stocks that are UP at the moment.....Honeywell and Tesla. Otherwise I am doing about what wold be expected in the current market. I have about one more day of the current market drops......and....I will be back at my low for the year. So far I have been there a couple of times this year and each time happened to bounce back up from there. I am curious to see if that happens again this time or if I BREACH my prior account low for 2022. My situation......particularly the fact that I do not need my stock market money for anything in my personal or financial life.....helps me to have........COURAGE.
Since stocks are not doing anything today....I decided to look at my neighborhood real estate. About the same as lately......47 listings out of 4200 homes. The highest is about $8MILLION the lowest is about $550,000. I see most of the pending sales in the lower end of the market. The high end of the market especially homes over $2MILLION are tending to take more time on the market to sell. If recent trends here hold......the markets will see much more activity starting about January first. I dont see much price dropping....buyers and sellers are in a stand-off. My Saturday radio show that I listen to on the way to shows or rehearsals.....is still documenting price increases over most time spans.....and......a definite lack of inventory. Mortgage rates are the BIG ANCHOR in the property markets here at the moment. There is a single home for sale in my immediate little neighborhood. That house has been on the market for about 2.5 months. The realtor is doing a bad job. They had a couple of early open houses....but did not put out any signs along the road or even at the gate to the neighborhood. We went in and spoke to the realtor.....she said.....no need to put signs out....people will come by me putting the open house online. Of course....when I asked her how it was going......she had NO customers showing up besides us. Many realtors have been SPOILED......they are now lazy. The ERA of simply throwing a listing online is OVER. You have to work your listings. Here in our general area I have noticed over 12 years of closely watching the property market that OPEN HOUSES sell homes. When we listed and sold three years ago.....we put it in the paperwork that the realtor would do an open house every two weeks minimum.
HANG IN THERE.....EVERYONE. For us OLD PEOPLE.....Thursday is the day we will find out our Social Security raise.
