When The Market Goes Down
Henry: So recently the world came to an end…oh wait it didn’t come to an end! But it threatened to with either US Government default, surging inflation, rising rates of infection because the Delta variant has been in the news flow, and equity prices dropped like 5% in September, and Jeff you came across a wonderful chart…talk about it.
Jeff: The chart just kind of goes through all of the 5% drops over the past decade and the “reasoning” as to why. We just found it really interesting because the market drops and gains 5% in small periods of time, all of the time. And there doesn’t necessarily need to be a reason for that to actually happen. Yet, the media portrays it with major headlines saying this is why this is happening. This really stokes fear in people. I think this is really important for us to understand and frankly ignore, because if you careen from crisis to crisis, and constantly live in fear, you will disrupt your financial plan.
Linda: And make really bad decisions.
Henry: Go back ten years ago to the Summer of 2011, do you remember what the crisis du jour was?
Linda: It was the debt ceiling debate.
Henry: Yes! It was like groundhogs’ day. There’s more. The Euro was going to collapse, and it was Greece and Portugal, and it was absolutely the time to get as far away from equities as you could. Look at some of the people you see today still invited back as guests on major business shows, and put their name in, and put in 2011, and see what they were saying. It’s very boring to sound optimistic. To be a rational optimist is not as exciting as being a prophet of doom.
Jeff: You also don’t’ sound as smart.
Henry: Right! Cynicism has a certain cachet.
Josh: I think some of the decisions people make during those times of turmoil when they are not thinking rationally, are decisions that are purely endorphin driven. When you push that money to sell, for that brief moment, you probably feel like the smartest person in the world! Some news article came out that validated your thinking and maybe it was a little biased, and it really emphasizes the importance of rationality.
Henry: There have been no major news stories that have truly had a catastrophic effect on compounding. There have been temporary interruptions, and some truly awful things. 9/11 was truly awful. 700,000 Americans dying from a virus is truly awful. Neither of those interrupt the compounding of an economy that functions at $21T of GDP.
Bobby: One of the best TV shows that was ever on was West Wing. I remember one episode in particular, a briefing coming in saying there’s a Chinese satellite that is going to land near a US city. And one of the new people on staff, it’s a side story through the whole episode because she’s so nervous, and in the end it comes down in the Ocean and it’s all fine. The Chief of Staff says, “who is going to be the one to tell her there’s a Chinese satellite coming down every day somewhere?”
Henry: You’ve just described the investing world.