Prophets

It’s amazing what a tiny bit of market volatility does to the brain.

I’m writing this on November 23rd. Here’s what CNBC ran on Friday:

“Dow closes about 500 points higher in big market rebound after steep sell-off this week.”

A steep sell-off? The Dow fell about 1.75% last week. Explain to me how a 1.75% drop qualifies as steep.

Anyway, this isn’t a post about headlines. It’s about what happens when a tiny bit of market volatility shows up.

And before I go on, I understand how discomforting a bit of volatility can be for some investors. Volatility is a feature, not a bug of investing. Remember: volatility is the price of admission for long-term returns. You don’t get one without the other.

When markets get volatile, we want to predict the future or we want to hear from someone who can. It’s normal, and it usually starts with this line of reasoning:

If an unknowable event results in an irrelevant outcome, how will the stock market react, and what should we do about it?

The answer, like the question, is unknowable and irrelevant. We shouldn’t be prophets. We should be historians.

The world is in a precarious place. Worse than ever? Who knows. Everything always feels worse than ever. But the sun will rise tomorrow.

Here are a few of the prevalent issues. And lists like this exists year after year – they just look a bit different. Trade wars, demographics, lack of growth in the European Union, government shutdowns, political discourse, sovereign debts, an AI bubble, equity sector concentration, valuations, the list goes on.

What will ultimately push the economy into a recession and/or drive us into another bear market? Nobody knows. But what’s the old saying? The biggest risk to the economy or market is what’s left over after you think you’ve thought of everything.

And this brings me back to my point. Investors get in trouble when they think they can avoid the discomforting part of investing. They’re also bombarded, almost constantly, by market prophets.

Charlie Munger, Warren Buffett’s right-hand man who died a few years ago, put it best:

People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts.

There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts.

Here is something I know. Markets get hammered from time to time. On average, expect a bad calendar year once every four or five years.

None of what I do involves predicting the future. It involves keeping you invested and keeping you out of your own way. I will not cheer with you when markets scream higher, and I will not mourn with you when the market gets hammered. I’ll keep you on your straight and narrow path, hell or high water.