What if the stock market emperor has no clothes

“The market is stupid!”

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I answered the phone this morning.

“Mate, the market is stupid”

It was my mate, ringing to chew the fat on his way to work.

“The S&P 500 is up more than 7%. In a month!”

“That’s nuts”

He’s right, of course.

While the academics tell us how efficient the market is, and the boffins and traders yell “Buy! Sell! Buy! Sell!”, my mate is the proverbial little boy reminding us that the Emperor has no clothes.

He said as much.

“Mate, I’ve been investing seriously for, what, six years? Even I know it’s stupid.”

He went on:

“Just look back at March last year. The market fell 30% [it was actually 37%]. Even I knew it was dumb to sell. People should have been buying, or at the very least, holding.”

“If they sold, they locked in, what, a 40% loss” (I’d corrected him on the 30% thing by then).

“It’s stupid”

“All they had to do was hold. Maybe it might have kept falling. Who knows. But even I knew not to sell.”

“It was almost certainly going to go back up eventually.”

That sound you hear is three-quarters of the finance industry shifting uncomfortably in their seats.

The gurus who waited for the market to fall further. (It didn’t.)

The geniuses who said they’d wait for COVID to be over before they invested (It isn’t. The market is up 62% since.)

Those who thought being an ‘active investor’ beats ‘buy to hold’.

Those who can’t just leave well enough alone.

Who need to be Masters of the Universe.

“You’re right.” I told my mate.

“The problem is that many people in my industry are too busy trying to prove how smart they are.”

“Maybe they’re trying to prove it to themselves. Maybe they’re trying to be smarter than the other guy.”

I hate taking victory laps, I told him. It’s classless, and pride comes before a fall. But I do it in this case, reluctantly, because it’s important.

Because here’s what I wrote during the COVID crash:


“In more than a century of ASX history, the market has never failed to regain and surpass a previous market high.

Think it’s different this time? That’s what they said last time, and the time before.

Yeah, but this time it’s really different? They said that, too.

So here’s the thing: with the ASX down ~30% from its February highs, there’s a ~43% gain on offer if the ASX just gets back to that level.

And then more if — as has always happened before — it goes higher.

Of course it could be different this time. It’s always possible.

But likely? I don’t think so.”


I’m not the smartest bloke in almost any room. That’s perfectly fine by me.

Not that I don’t have an ego — we all do. I’m not so arrogant or naive to think I don’t.

But I don’t feel like I have to prove myself to anyone. Which is a wonderful thing.

Sure, I’m pleased I wrote those words at the very beginning of April last year.

I’m pleased because I hope you listened at the time.

And because I can use it, now, as an example of the simple advice that just works, in investing.

And because I hope it might mean you’ll follow my advice next time.

Not for my sake, but because I want to see more people enjoy long-term success with their investing.

(And maybe listen to fewer of the prognosticators, predictors and self-appointed experts, too!)

Because, I don’t know about you, but I reckon making a few bob beats missing out by trying to be ‘smart’.

So does my mate. If you won’t listen to me, at least listen to him.

Fool on!

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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