Stock market 2019: What could go wrong?
Reprinted courtesy of MarketWatch.com
Published: Jan. 22, 2019
To read the original article click here
Things right now seem like an awful mess.
• Our government is partially shut down and hundreds of thousands of employees struggle to make ends meet, through no fault of their own.
• Congress and the White House seem unable or unwilling to do their jobs. (Are there any adults left in charge in Washington?)
• Stocks started the year relatively steady, but after Dreadful December, did that mean they were merely teetering on the edge of a ledge?
• Farmers and factory workers are being hurt by trade wars.
• Interest rates are going up. Or are they retreating? Or holding steady?
On the level of macro, things that affect everyone, I’m concerned about these and other issues.
But I’m even more concerned on the level of micro, things that affect only one person or one household at a time. My concern is for what investors are likely to do as they try to avoid the big-picture problems.
Peter Lynch, one of the great investment heroes of the late 20th century, had this to say: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
If I let myself dwell on things, I could be worried for the future my personal investments. I could fret about the political paralysis in Washington, D.C., about the potential damage from broken trade agreements and fractured international alliances.
I could worry about the economy of China, the economies of Europe, and the economy of the United States.
Returning to the initial question of what could possibly go wrong this year, the answer is simple: Plenty.
But I could have written that exact same thing at the start of 2018, at the start of 2017, and in fact at the start of any calendar year you care to name.
If you are looking for potential troubles, you’ll always find them. The important question is: What am I doing about these worrisome things?
On the macro or big-picture level, if I could change or fix these things, I would. But I can’t.
On the micro or personal level, I’m satisfied with what I’ve already done to shield my investments from the inevitable market storms. My energy should be focused on things I can do something about.
I can exercise regularly, improve my diet, and do the other things my doctor tells me to do. I can continue to help investors make better decisions. I can write a new book this year that sums up the most important things investors should know.
I could monkey around with my investments, spend lots of time reading and watching TV and worrying about the state of the world.
But there is zero evidence that would be of any help to me or anyone else.
Irving Berlin wrote: When I’m worried and I can’t sleep, I count my blessings instead of sheep.” My own approach doesn’t involve animals: Instead, I turn to statistics.
From 1950 through 2018, the S&P 500 index SPX, -0.12% was up in 54 calendar years, down in 15 (including the year to which we just bid farewell).
Despite these negative years, the index had an annual compound rate of return of 11%. During this time, there were constant wars, recessions, political crises, bear markets, and other very real dangers I don’t even want to list.
Through all these things, the main index of U.S. stocks managed to compound in double digits. That gives me some comfort, because my portfolio includes this asset class.
When I look at an index of U.S. small-cap value stocks, an admittedly riskier asset class, I get more good news.
During those same 69 years, 1950 through 2018, small-cap value stocks were up in 46 calendar years, down in 23. That’s about 50% more bad years than were experienced by the S&P 500. But through it all, that index managed a compound return of more than 15%. I’m glad to say that my portfolio also includes this asset class.
Still, the financial news is perennially unsettling. Sometimes I feel like I’ve got to do something about whatever is popping up in the news. But I know that’s a trap, nothing but an intriguing dead-end road.
I’m reminded of something that John Bogle once said about the daily flood of financial news: “It will have no effect whatsoever, categorically, on your lifetime investment returns.”
I was saddened to learn that Bogle, founder, chairman, and CEO of Vanguard for more than 20 years, passed away recently.
In 2017, I had the pleasure of spending 90 minutes with Bogle in his office in Pennsylvania. He was honest, open and inspiring.
He inspired me to renew my commitment to helping investors.
Bogle was known for his honesty, his work ethic, and the trust he inspired among investors. Everything he wrote and said reflected what he believed was in the best interest of investors…a rare trait indeed in today’s investment world.
He was committed to keeping things simple, keeping expenses low, living and working frugally. Because of Bogle, you and I have access to index funds, which were previously available only to institutions.
In half a century of working with thousands of investors (and being one myself) I have learned many things. Here are three:
• If I decide to sell out of fear, I’m very likely to regret it.
• If I buy out of greed or excitement, I’m very likely to regret it.
• If I just worry and stew, that won’t do me the slightest bit of good.
So what should you do when you’re concerned about something that you can’t do anything about, when virtually any action you take is more likely to make things worse than it is to make them better?
Fortunately, there are lots of excellent answers. Here are a few:
• Take a walk.
• Call somebody you care about and tell them what you like about them.
• Read a good book.
• Organize your closet.
• Carry out a random act of kindness or compassion.
• Do something important that you’ve been putting off.
Earlier, I quoted Peter Lynch and John Bogle, and I’m always interested in words of wisdom from respected investors who should know more than I do.
Here are a few other examples:
From Benjamin Graham: “The investor’s chief problem—and his worst enemy—is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
From Bogle: “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible.…I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”
From Paul Merriman: The bad news always sounds worse than it is likely to be, and the good news always overstates what’s likely to happen. In the long run, when you’ve evaluated your need for return and your tolerance for risk, and you’ve allocated your portfolio accordingly, you’re done.
From Harry Truman: “When you’ve done the best you can, you can’t do any better.”
Truman also had something to say about the pundits on CNBC who are so sure they know the future of the market: “Conceit is God’s gift to little men.”
Want more words of wisdom? Check out this article.
For more on the large wake that Bogle left behind, listen to my podcast, “How John Bogle changed my life — and yours.”
Richard Buck contributed to this article.
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