I’ve written, a lot, about the events of the last two weeks on the ASX. In short, it can be summarised in a tweet: “The last 10 days in a tweet: Markets were complacent — intellectually ready, but emotionally stunted. They got a shock, threw the toys out of the cot, then realised that volatility is normal” The problem for most investors — who aren’t wearing expensive suits in expensive offices in the middle of the country’s capital city CBDs — is that they can tend to believe the ‘smart money’ should know what’s going on. Remember the…
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I’ve written, a lot, about the events of the last two weeks on the ASX.
In short, it can be summarised in a tweet:
“The last 10 days in a tweet: Markets were complacent — intellectually ready, but emotionally stunted. They got a shock, threw the toys out of the cot, then realised that volatility is normal”
The problem for most investors — who aren’t wearing expensive suits in expensive offices in the middle of the country’s capital city CBDs — is that they can tend to believe the ‘smart money’ should know what’s going on.
Remember the GFC? Of course you do. I learned overnight that Vanguard’s US ETF continued to have fund inflows even as the crisis hit during 2008 and 2009.
That is, regular people continued to invest money through the fear, while the ‘smart money’ panicked and thrashed around like they’d just stuck their collective fingers in the powerpoint.
And you wonder why I put ‘smart money’ in inverted commas…
So I — and my Foolish colleagues — spent most of last week doing the most important thing I could — reminding our readers and members not to panic.
I think it was time and effort well spent.
But now what? We find ourselves in some sort of relative calm. For now. Until the next panic.
And it will come, because they always do. Markets become overly optimistic and overly pessimistic. They fret when they shouldn’t and don’t look at reality when they should.
The message, dear Fool, is clear: ignore the gyrations and focus on the long term.
And, keep buying.
There are way, way too many people who treat investing like punting. “I’ll wait till the bottom”, they say. “I’ll sell at the top”
Yeah, thanks, Nostradamus.
We’d all like to do just that, of course, but it’s madness to try, and self-deceit to imagine it’s possible. (Or others are deceiving you, in an effort to get you to pay them huge fees for trading systems or something else. Run, don’t walk, away… and don’t look back.)
The next best option, after the illusory seduction of ‘buy at the bottom, sell at the top’?
It’s buy. Just buy.
I know of many people who will tell you to wait, then ‘buy the dips’. Ask those people how they felt being in cash for the last 13mths as the US market roared ahead by 30%. Yes, it gave 10% of that back, but if you waited to ‘buy the dip’, you cost yourself 20%.
Not such a smart strategy, huh?
So? So, just buy.
Investing well — investing capital-F Foolishly — should be a simple process. Yes, you have to buy the right things, but don’t stress about timing.
The service I run, Motley Fool Share Advisor, makes it almost mechanical. Come rain, hail or shine, I select one ASX stock every single month. Regardless of the market level. Regardless of the macro predictions — or circumstances.
Yes, in hindsight, I can tell you exactly the top and bottom for every company and for the market in general. But in hindsight, I can give you last Monday’s lotto numbers, too.
So we do the next best thing: put the long-term compounding machine to work for us, and ignore the noise.
Now, here’s a peek inside the tent:
About 3 years ago, my fellow Foolish colleagues and I were talking about some of the challenges of picking winning stocks at that point in time. The market seemed high, opportunities seemed thin. We wondered ‘Should we take a month off?’.
You can guess what happened next, right? The market kept rising… and rising.
Our process saved us from ourselves. From being dissuaded by the market. From succumbing to the temptation to let paralysis take over.
So, we picked a stock. And another the next month. And the next month.
I’ll confess: I don’t remember exactly which month that was.
But the numbers since then are stark: we haven’t got every pick right, but the market shows a positive return for every single month of the past 6 years (based on the date we picked that month’s recommendation) up until October last year.
Taking a pass would have been an expensive lesson in hubris and the importance of process and temperament.
Now, I’m proud that we recognised that at the time, and kept picking stocks, anyway. But the lesson has always remained with me.
We picked stocks through Brexit, through Trump and through the putative Chinese ‘hard landing’.
We picked stocks when RBS said ‘Sell Everything’.
We picked stocks when the dollar was higher… and lower. When interest rates were going to rise… and fall.
We picked stocks.
I’m going to take a punt, and assume you get my point.
You know what we decided to do, when the market went nuts last week? Yep, pick stocks.
And, for what it’s worth, Motley Fool Share Advisor is very soundly beating the market. Our average ASX recommendation is up 55.4%, compared to the average ASX gain of 24.9%, both including dividends.
Our next ASX recommendation will come out next Thursday, February 22. Our next bonus US recommendation comes out tomorrow.
And we’ll do the same next month. And the month after. And the month after.
Sometimes, in hindsight, that might be a mistake. More often — and every single month of our existence between 2011 and last October (thus far) it’s been the right thing to do.
More importantly, there is no reliable way to know, in advance, which will be which.
So we put history — and the law of averages — in our favour.
We just pick stocks. And so should you.
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