Bulls or Bears: Who Will Win This Financial Tug-of-War?

Investing can get pretty messy at times…

Earlier in the year, for instance, it seemed investors couldn’t escape from shares quickly enough.

To begin with, they were fretting over China’s slowdown…

Collapsing oil prices were another huge concern, together with the ongoing weakness in the iron ore space…

Then there have been the worries regarding the world’s central banks, and whether they have the capacity to guide their countries through another tough period – particularly with the Global Financial Crisis still fresh in our memories.

Still to this day, some bears are questioning whether the US economy is headed for another recession, and if Australia could be headed down the same path…

But then, despite all the doom and gloom, the Australian share market appears to have risen from the dead.

The S&P/ASX 200 (ASX: XJO) itself has ended in the black in nine of its last eleven sessions.

Ironically, the gains have largely been driven by rising commodity prices as well as stimulatory measures provided by China, not to mention encouraging economic figures from the United States as well…

The local market was up another 19 points on Monday, while it has risen 10.2% since hitting a two-and-a-half-year low in February…

Playing the Long-Term Game

Here at The Motley Fool, we’re big believers in the long-term.

We typically invest in shares we believe will be bigger and stronger (and of course, worth more) in three to five years, but our ideal holding period is much longer than that – spanning a decade or even longer.

Sure, we’ll lose money some years…

But if history is anything to go by, those down periods will be more than offset by even greater gains during the better times.

Of course, there are plenty of other advantages to long-term investing.

To begin with, we can let the power of compounding work its magic.

We can also minimise our brokerage fees as well as any taxes on capital gains, both of which can erode your overall returns heavily when you trade too regularly.

But many investors don’t follow that logic.

Instead, they invest based on a significantly shorter time horizon.

Obviously, investors are allowed to trade as often as they like, and if that’s what works for them then so be it.

But that short-term mentality can also create a dangerous susceptibility to the market’s mood swings, which is what we’ve seen recently.

As some investors panic, that fear latches onto others and the anxiety spreads.

It can be scary, for sure.

After all, nobody likes to watch their shares falling, day after day…

Nor is it comforting to see warnings such as the infamous one from the analysts at the Royal Bank of Scotland to “Sell Everything” splashed across the news.

But those investors who ignored the adversity are sitting pretty right now, and I’d wager that they’ve made the right call for the long-run as well…

A Financial Tug-of-War

The truth is, I don’t know what’s going to happen in the near-term.

Nobody does…

That includes the talking heads on the evening finance news, and even Warren Buffett who is arguably the greatest investor of all time.

The man admitted it himself in a recent interview with CNBC…

In a statement that echoes how he’s always approached share market investing, he said:

[I]n terms of what is going to happen in a day or a week or a month or a year even, I’ve never felt that I knew it.”

That’s hardly encouraging for investors focused on short-term returns, but what he said next will be more comforting for Foolish investors (my emphasis)…

I’ve never felt (the short term) was important… I will say that in 10 or 20 or 30 years, I think stocks will be a lot higher than they are now.”

As if Buffett’s guidance wasn’t enough, here’s something else from the Behaviour Gap’s Carl Richards via Twitter recently…

TS 15 march

Right now, things do seem messy.

The market can’t decide which way it wants to go.

It’s like a tug-of-war between the bulls and the bears – one group trying to overpower the other – and it’s making some investors second-guess their emotions and the financial decisions they make.

Which side will YOU take?

Of course, some investors remain fearful – so much so that they would prefer to keep their money in the bank.

It’s the safer alternative, sure…

But then again, it always has been.

That’s why shares have historically outperformed cash returns by a long shot. Investing in the market is riskier by nature, but in the long-run the gains can be truly incredible.

It’s also worth remembering that the Reserve Bank of Australia’s cash rate is stuck at just 2% — and possibly going even lower.

That means that whatever cash you have sitting in a bank deposit is earning diddly-squat as far as interest goes…

And whatever interest it is earning is likely being eroded by both taxes and inflation.

By comparison, many Foolish (capital ‘F’) investors are still wading their way into the share market.

Ignoring the market’s short-term gyrations, they’re instead focused on the bevy of opportunities on offer right now.

For instance, some might be building their positions in companies such as Telstra Corporation Ltd (ASX: TLS), which have fallen from their 2015 highs…

Others are buying businesses like Westfield Corp Ltd (ASX: WFD), which stand to benefit if (or when) the Australian dollar falls again…

They see that the S&P/ASX 200 is still sitting well below last year’s highs, with plenty of shares trading at very reasonable prices.

With local shares still hovering below 5,200 points, this could be your opportunity to get ahead…

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