Do you find yourself believing the negative hype and frequently grumbling about how the market is going to tank any minute? Does it seem that all news is bad news, especially when it comes to how it will impact your investments? Maybe the sky is falling, but maybe this is just negative speculation intended to sell newspapers and get eyeballs onto television news screens. Declaring that a bad thing is just around the corner is an age old way to attract attention because no one really wants to buy a newspaper with the headline “Everyone is happy and things are fine”. And no one wants to be wrong by failing to predict a bad outcome. Current events absolutely impact global stock markets, but they can have both good and bad impacts, and usually the negative impact is merely a blip in the long run. Focusing on solely negative news can lead to crushing depression and can also lead you to take hasty, fear-based choices with your money. Don’t do it. Fight the negative and focus on the long term outcomes rather than short term fears.
Let’s take a look at some recent events and their market predictions. Despite analyst’s gloom forecasts, the market barrelled through Brexit. Then-President Trump predicted a market crash if he lost the the 2020 election but it rallied despite his loss. Hurricanes in Puerto Rico barely moved the stock market needle, as did missile tests in North Korea, The market apparently forgot about the ongoing financial turmoil in Greece, laughed at the massively fluctuating price of oil as it dropped then buoyed back up. Despite crashing in the spring of 2020 from the record high unemployment due to the pandemic, the market seems to have recovered from the virus faster than people have gotten inoculated.
All of these events were “supposed” to have an affect on the stock market. That’s what the TV told me. That’s what I read in the newspaper. That’s also what my friends in the business told me.
But in reality, the market has gone up, up, up. In the long term, staying the course in the stock market has led to major upward growth year over year.
Through this process, I discovered that the negative argument always seems to make the most sense. It is also the most believable as events unfold. But why is that? Why does being negative feel so natural. Why are positive people looked down on as naive? Perhaps it’s the same reason we turn our heads to rubberneck when we drive by a car accident. The drama, intrigue, and fear seems a much more compelling story to share with someone over discussing how nice the weather is.
When I am sitting with friends and clients, everyone talks about the negative. Everyone gives a reason or two or three why the stock market will go down. They are so sure of it. But these hunches have historically been proven to be inaccurate in the long run.
Don’t get me wrong, I am not saying that the stock market will never go down. Of course it will. It has to. There are business and economic cycles that must play out. That in turn will cause the markets to rise and fall. But over the long term the market recovers from these downturns and usually continues in an upward trend.
So if you follow along the path, it’s easy to see that markets must go through a period of pull back or recession. It’s the natural order of things, just like periods of expansion. What goes up must come down, right? But more people talk about the pull back, the down days, the next black swan event.
Let’s talk about 4 implications of believing the negative hype.
1) You will probably sell your investments way too early. There is a rule in investing: let your winners run and cut your losses. Only when things start to head south should you take your chips off the table. Keep riding the hot hand and capture as much of the upside as possible. Don’t let fear of a downturn turn into an actual downturn.
2) Waiting too long to invest because you are worried about the pull back. We have learned that allowing our money to compound for the longest time possible will lead to the most growth. By constantly waiting for the “big” pull back you will sit on the sidelines for way too long, shortening your time horizons big time. Also, if you are constantly worried, you might be on the outside looking in forever. I personally know of people who got so spooked by the credit crisis they have been in cash since 2009, missing out on the tremendous 9 year rally.
3) Your financial planning never gets off the ground. We all need our money to work for us. I haven’t come across one person who is living so beneath their means that a 0% long term return is good enough to satisfy their financial goals. If you factor in a 2% inflation rate, a 0% return is actually a loss. So, if your money is not growing on its own, that means you have to save every penny to make up for it. Most people fail at making up that difference. I have seen cases where people would have to save 100% of their income to accomplish all of their financial goals. Of course, that is just not possible.
3) Walk around miserable waiting for the other shoe to drop– you’re like the guy at the casino craps table rooting for “7”. Don’t be that guy! There’s no benefit for you to live in fear and repeat “the sky is going to fall” so much that people call you a little chicken. If you live in fear of the future you ruin your present.
By buying into all the negative hype, there is a good chance you will be miserable. It will distort your view on EVERYTHING. How your money goes, so does your life. It’s sad but true. Why would you want to experience any of these things? Can you fight the negative and instead shift your focus onto the positive wins of investing rather than waiting for the other shoe to drop?
