Stop the presses!
(I've always wanted to say that!)
I have some breaking news.
No, it's not:
"$60bn wiped from Australian stock market on worst day for ASX in 18 months"
That was The Guardian on August 15 this year.
And it's not:
"Banks sink as $44b is wiped from ASX"
(The AFR on the same day.)
It's not even:
"$30bn wiped from ASX on recession fears"
That headline was in The Australian earlier this month.
How about:
"Retiree incomes cop another blow from stock market dive"
No, that was Canstar, back on August 7.
Okay, okay. Enough already.
Here's three headlines:
"ASX booms as shareholders make 24% in less than 10 months"
"Retiree incomes soar as market delivers huge gains"
"Australian investors $340 billion richer as market soars"
Where, exactly were they?
Nowhere.
I just wrote them.
The thing is, they're all just as correct as the headlines I posted above.
But they're far, far more useful.
See, our brains are wonderfully evolved for survival on the savannah.
But we're terrible at keeping financial numbers in perspective.
I don't blame the media — they just report what happens. And all of those "$X billion wiped off" headlines are dead accurate.
We love them. We click on them. The papers give us what we want.
Can you imagine how few clicks they'd get for "Slow and steady wins the race"? Or "Market continues its upward climb, occasionally interspersed with falls"?
(You don't have to wonder — they'd write those articles if we clicked on them. But, as every decent newsman or woman can tell you, they don't rate.)
Our brains just don't get turned on by that stuff.
It's also the reason we tend to struggle when it comes to not tinkering with our portfolios.
We respond to fear. We crave action. We endlessly think "But what if…"
We have met the enemy. He is, well and truly, us, as Walt Kelly suggested.
Can you remember the fear back in December of last year?
Remember the predictions of doom.
And the 24% gain this year has come despite, not in the absence of, geopolitical drama including trade wars, Brexit negotiations, Chinese economic risks and Venezuela's near-implosion… plus the usual industry and company specific risks here at home.
In December, some thought "I'll wait until stocks get cheaper" before they bought.
That missed 24% gain, while they waited for a 5% drop is, well, 'suboptimal', as the management consultants say.
So what's coming next?
I don't know. You don't know. And the talking heads sure as hell don't know.
But think back 10 months, just as you recovered from overeating on Boxing Day and were sitting down to Day 3 of the Test Cricket.
Remember the predictions? No, you probably don't. Me either. Because they're a dime a dozen, and just about as useful.
But since then, the ASX has gained a whopping $340 billion in value!
So what's an investor to do?
Maybe today is the top. Maybe next week. Or next month. Or next year.
I could have written the same answer on December 28, too. And Feb 28, March 28 and July 28.
You still think you should try to time the market?
Me neither.
Instead, we're better off adding money slowly and regularly.
We won't pick the top. We won't pick the bottom.
But — if history is any guide, and I think it is — we'll both sleep more easily and build meaningful long term wealth.
Or you can keep letting the headlines and market gyrations 'inform' your decisions.
Good luck with that.
Fool on!
