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Down 20% in 7 trading hours… Worse to come?

“If we as a society stopped and thought about it for a minute, we’d blow the whole finance industry up.”

That was me, talking to a good mate this morning.

(And because we live in reactionary, call-out times, let me be clear I’m talking metaphorically and holistically — I’m clearly not suggesting actual explosions or harm!)

With that out of the way, back to my point.

My mate called me to laugh about the recent bout of market volatility, with the US market down some 6% overnight.

Laugh, not because we were both making losses, but because the whole thing is just silly.

Here, some travel stocks have lost 20% in little more than 7 trading hours over the past two days.

Twenty per cent.


Well, you can make up your own mind. 

In theory, it seems to be because of a more sober outlook from the US Fed and an uptick in coronavirus cases in the US.

Okay, fine.

But let me put that another way.

If you think Flight Centre Travel Group Ltd (ASX: FLT)’s total future earnings — from here to eternity — are  worth 20% less because of those two inputs, I don’t think you have any business investing.

Here’s why:

First, eternity is a long time. Coronavirus is either transitory or endemic, but in either case, discounting the entire future earnings of Flight Centre by 20% on the basis of two transitory data points is, as they say in Yes, Minister, ‘courageous’.

Second, if that’s your view, you implicitly thought Flight Centre was worth 20% more on Wednesday just because you expected the Fed to be more bullish, and COVID cases to fall in a 24hr period.

Which means you were betting 20% of the value of that position on what a Fed Chief might say, and the ultra-short-term trajectory of an inherently unknowable and volatile data series: COVID case counts.

And when I say ‘you’, I don’t just mean you, dear reader.

I mean the sum total of all investors buying and selling (and, implicitly, choosing to neither buy nor sell) over the past couple of days.

In short, the finance industry.

These are people who extract billions of dollars in fees from people like you and me every year.

Because, apparently, they’re the experts.

They know what’s going on.

They’re not silly enough to take part in a market that drops 38% in a matter of weeks, then climbs the best part of 20%, before falling 6% in a couple of days.

I mean, that’d be crazy, right?

Who’d seriously invest that way.

And who, in their right minds, would pay fees to people who invested that way?


I see.


Yep. Us.

Billions and billions of dollars every year, across the globe.

Can you imagine if your accountant worked that way?

Your mechanic?

Your doctor?

Now, I have to say, I shouldn’t hate on it too much.

After all, as long as we can separate ourselves from the seemingly manic activity, it can be an opportunity.

I’ve been telling you that I think it’s been a good idea to keep buying, if you want to make money.

(If you don’t like money, I have a PayPal account you can donate to!) 

Not because I knew what the skittish market would do next, but because my (and I hope your!) time horizon is different.

From a wealth-building perspective, I genuinely don’t care what the market does next.

Because I’m not cashing out tomorrow. Or next week. Or next month. Or next year.

Nor are you.

Even if you’re retired or about to retire, you almost certainly don’t need to ‘go to cash’ this week.

Maybe you can live on dividends. Maybe you need to slowly liquidate your portfolio over many years.

Either way, today’s movements are noise.

All of this volatility reminds me of an old joke:

A bloke is worried about whether his blinkers are working, and asks his mate to stand behind the car and check.

His mate calls out ‘They’re working… they’re not working… they’re working… they’re not working… they’re working…’.

It’s not a bad metaphor for investing.

Investing doesn’t stop working just because some knuckleheads get temporarily overexcited or temporarily disappointed.

Investing wasn’t a great idea on Wednesday, but a terrible idea yesterday.

(Sounds kinda obvious when you put it that way, doesn’t it?)

Was the market seriously ever worth 38% less in March, compared to February, because of a pandemic?


Just as it wasn’t worth less because of wars, recessions or anything else in the past.

Because the value of each company’s shares are the full sum total of profits over the long term — not just this week or this month, or even this year.

To be blunt, Flight Centre cannot have been worth $16.85 per share on Wednesday at 4pm and $13.32 at 11am today. The company’s future just hasn’t swung that wildly in 7 trading hours.

Maybe — maybe — one of them was right.

But probably not.

Still, if we’re generous, and say one of them was right, then the market has been right half the time.


(And both are still probably wrong.)

Now you know that, are you still going to put value in the daily recitations of the value of the S&P/ASX 200 Index (ASX: XJO)?

Do you still reckon the billions doled out in fees to financial types are value for money?

Are you really going to let the daily movements of share prices tell you how to think and how to feel?

I hope not.

Short term movements are noise.

Distraction. Misdirection. Rubbish.


A small aside: As I write this on Friday morning, an alert just popped up on my phone. Apparently US futures are up 100 points.

Up. Down. Up.

It’s laughable.


Fair dinkum. If you’re still letting the market dictate your moods, or your actions, I hope this piece helps you sleep a little better.

I hope it helps you realise that the charade of ‘control’ that lets the finance industry rake in exorbitant fees is, well, just that — a charade.

I hope it makes you ask that eternal question, first voiced by someone when a stockbroker showed him his brand new boat: “… But where are all the customers’ yachts?”.

Yes, there are some good eggs. They’re trying their best. You’ll know them, because they’re the ones who are happy to say ‘I don’t know’, and to prick the pompous bubble of the industry.

The others? Well, decide for yourself.

Just take their prognostications with a huge dose of salt. And their fees the same.

In the meantime?

I’m never particularly happy when my portfolio is worth less than it was yesterday. I’m only human, too.

But it’s the response that counts far more.


I’m not selling. I’m not panicking. And I’m sure as hell not asking the market what I should think.

I’ll probably buy shares next week, I think. (I have a decent Achilles’ heel: our internal trading rules mean I’m not allowed to buy or sell shares within 2 full business days of mentioning them in public or to our members. So my ‘restricted’ list is usually longish and ever-changing!).

And my prediction? I’m sticking with the words of John Pierpont Morgan who famously said, when asked to give a prediction on what would happen to the index: “It will fluctuate”.

Everything else is vanity, pretence or willing obfuscation.

Over the long term, though? History has delivered meaningful long-term compound gains for the patient.

Invest accordingly. Please.

Fool on!

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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