What a weekend. Trying to review all of the experts’ opinions this weekend is a wasted effort. Besides it immediately places ones mindset into a failure state: the state of lacking – versus the state of abundance, the latter having proven a far more productive view in the last 200 years or so.
That being said, the coverage this weekend and all day Friday, from before sunrise to well into darkness, was tantalizing indeed. And it did what it was supposed to do.
The coverage drove the VIX, spiked fears and trampled the averages with the 4th highest day of volume in the last 2 years (the other three were within 2-3 days of lows – if not the low).
This also stacked up on top of a major Russell re-balancing on the close Friday. You can just imagine the fearful perspectives now driven even more deeply into the psyche of the crowd.
Cutting to The Chase
I could blather on about lots of stuff that sounds really brilliant. I could analyze to death the aspects of risk with breathless anticipation. I could tell you the many things we need to fear – but I’d rather just cut to the chase.
Welcome to the summer swoon excuse trigger. What to do? Be ready to pounce.
By morning I will have a larger summary piece in PDF form which will be distributed to all members. For now, this weekend send will just hit a few highlights – the primary nature of which will likely be very contrary to the garbage bin being flushed into our systems via the tension-filled media processes. There is even a new term being coined: “ReBrexit” where millions have already signed a petition to suggest they did not understand the vote. One could not make this stuff up.
I Really Hate To Say This….
But Keep Calm and Carry On. While others will do as they always do – we are paid to collectively think more clearly during times of perceived confusion. The fact of the matter?
It is during these types of events, these windows in time – where you make much of your long-term return.
The most difficult action/reaction for a vast majority of investors is to “stay the course” in the face of frightening news and incessant recession or apocalyptic predictions.
Here’s the key though: It is also the most rewarding.
Let me Count The Ways
Seriously, grab a cold beer, hot coffee or a nice cigar. Peer out over your life and ask this: Is it good to be alive today? I hope your answer was yes – so let’s all be thankful for that first.
The Brexit decision in reality was more like a getting a divorce after living apart for 20 years.
With the exception of this rampant need for “clarity” about the future – as if it EVER really arrives – or this “the market does not like uncertainly” garbage, what really will change?
Are we to assume that somehow the EU, who needs Great Britain far more than in reverse, is going to screw Britain over it’s economic and trade agreements which will now be negotiated over the next 2 years?
We had those nutty thoughts before, way back during the cold war. It’s like who was really going to push the red button for mutual assured annihilation? The EU was never a productive vehicle – ever. It helped Germany – that’s it.
Oddly enough, were it to break up, we may indeed find many good things – as I suspect we will find in coming months out of Brexit.
Oops – Did We Forget?
By the way, did anyone else notice how quickly we dumped the “$26 crude oil is the end of all mankind” monster to the curb? I digress.
Prior to the 4% drubbing here in the states for most of the indices on Friday (again, compounded by the volatile Russell rebalance into the close), most had already forgotten the markets had rallied 2% in the 4 days prior.
Net, net, this Apocalypse caused (so far) a net 2% week over week change and right at a 2.50% month over month decline in the S&P 500. Judging by the breathless words from every piece I saw, one would have thought it was October 1987 all over again.
Indeed, early last week, I noted for you that the S&P 500 had closed the day before at the same price range as seen on November 21, 2014. Friday – we notched that back to November 6 of the same year. In other words – more of the same thing we have seen for 20 months now.
It stunk on Thursday as noted. It will stink more this week after Grexit. That’s good. Here are a few snapshots:
A Bigger View
These are just some random thoughts which have proven helpful during periods like this weekend and the ensuing weeks. One is a joke I heard once from a pilot:
“My job is all about hours of boredom interrupted by a few moments of terror on takeoff and landing.” Investing tends to be the same.
Over the years, I have found the aspect of compounding over time is the toughest to grasp and obtain. Morgan Housel said: Compound interest is like planting oak trees. One day’s progress shows nothing, a few years’ progress shows a little, ten years shows something big, and 50 years creates something absolutely magnificent.”
What people don’t realize is that what you do during times of stress can either provide you that compounding benefit – or completely erase it from existence.
Investing is also a good deal like math. Many experts on Wall Street try to impress you with complexity, but the simple elegant stuff is what’s really powerful. The wooing stuff usually just boils down to more expensive fees in the end.
Simple? Count people…money follows.
Likewise, all the derivatives and hedging tools we are now flooded with these days are much like Louis Vuitton handbags. As many husbands know, they have some minor practical uses, but mostly they’re an attempt to impress other people at the benefit of sellers and middlemen.
Again, we may be really boring – we try to stick to simple.
Call it nutty – but it works. Simple will be the hardest thing to do in coming weeks – just like all summer swoons. This one we will all blame on Brexit – next year it will be something new, after another swing at bird flu during flu season.
In the end – it’s always tough to stay the course. That’s why they call is investing – and not fun. It reminds me of another saying I heard once: Wall Street is like Las Vegas. But with Hermes ties and no free drinks.
Stand Against The Storm
Winston Churchill once stated, “Democracy is the worst form of government, except for all the others.”
Whether it was after 9/11, or the 2008 financial crisis, or Greece’s default, financial markets have always habitually gone through sharp, knee-jerk reactions to big events, driven by mesmerizing media coverage and spiked with lots of “uncertainty.”
The secret – all of life is uncertainty. All of it…it is what we believe it is – period.
Fear in markets has made the normal reaction “sell now, ask questions later.” Why?
Sure, as noted in your Memorial Day break updates, it’s always possible a big stock sell-off is justified.
Time has proven though that it is far more probable a downward dip is more indicative of people selling because they don’t know what’s going to happen, not because they have a secret path you don’t know about.
Yet another chart is helpful here:
While the world will spend much time over the ensuing weeks trying to define the future as it relates to Brexit, we stand by the idea that most will be wrong.
Most will dramatically overstate the negative impact – while overlooking the many things which are more likely to go correctly. Call that poly-annish or rose-colored glasses thinking but it does sit better with history as the chart above notes.
The Motley Fool did a nice list of what took place during that long trend in the chart up the mountain, which we all work on when amassing wealth for future generations. Take a look:
- Over 1.3 million Americans died while fighting nine major wars.
- Four U.S. presidents were assassinated.
- 675,000 Americans died in a single year from a flu pandemic.
- 30 separate natural disasters killed at least 400 Americans each
- 33 recessions lasted a cumulative 48 years.
- The stock market fell more than 10% from a recent high at least 97 times.
- Stocks lost a third of their value at least 12 times.
- Annual inflation exceeded 7% in 20 separate years.
- The words “economic pessimism” appeared in newspapers at least 29,000 times, according to Google.
The final tally?
Thinking in abundance about the future, instead of lack and fear, allowed one to witness the market move up 10,000 fold.
During my time in the markets since 1982 – it is just 18-fold (even after Brexit).
It’s Better Than We Think
The Barbell Economy continues to move along steadily. The focal points noted for members are unlikely to change much at all as it relates to Brexit. It may even be better for the US as money flows to strength!
In or out of the EU, those steps oversees will have little impact on the actions taken over the next 30-40 years by the two largest generations to ever impact the US economy.
For now remember, just keep these thoughts floating in the back of your mind:
History proves repeatedly: Investors are rewarded for doing the logical thing when most others are losing their minds in emotional fretting, and
Fear drives your attention (and it also makes stocks cheaper).
People drive markets.
Folks, we are in great shape. This is a storm on a very, very significant ocean.
Until we see you again, may your journey be grand – and your legacy significant.