Last weekend, I attended what we in the industry call a “due diligence conference”, and although that may be code (and is) for fantastic wine and fine dining, which could only rival my eating and drinking my way through Europe at 18, I was not there for the food or the wine this time. (Not after my last conference fiasco eating and drinking extravaganza, which you can read about here!)
I sometimes (mostly) sit at meetings and find myself totally bored, usually because there’s a certain type of personality (or lack thereof) that is called into this business of numbers, and I think it usually has more to do with the flat monotone sound that my ears aren’t accustom to and I find peacefully soothing – this after coming from a house of screaming kids. So, naturally, one can find themselves after an entire day of these types of meetings in a zen type zone…..
However, this time, that was not me! I took more notes than ever before because we are in a super interesting financial time. So I want to go back to some of these basics over the next few weeks to help frame up some crazy misconceptions that go on in our heads about the global economy, equities (stocks), mutual funds, and the bottom line on some basics that keep getting distorted from our various media outlets, be it social media, news media, print media, etc. At the end of the day, you need to always sort the facts from the opinions, and trust me, when it comes to markets and investments in general, it is all opinions. We trade on opinions. We make money and lose money on opinions. And the sooner you can learn that and remember that, you will be better off in the long run!
Today, I want to share with you the first of these misconceptions.
Markets go up more than they go down, although, for so many investors, it FEELS like it’s always going down. (Usually for people who don’t really have a solid plan in place to let logic trump emotion.)
It really makes perfectly logical sense. Our world, the universe, as we know it, is always expanding. Life seeks to grow and evolve. No one wants to decline; no one wants to rollover and play dead. So, WE (collective humanity) live and grow and in doing so, so does our world, economies, businesses, and families.
So why do people think that the “stock market” is always going to crash and never recover? That means that we (as the people of the world who are the buyers and sellers of the companies we trade) feel that everything we’ve ever built on earth is worthless!?! It’s not going to happen! (Trust me, when the world does end you won’t care about your portfolio – I always say this to my clients. I’m very reassuring!)
Cycles will happen, but that’s because of other issues that need to be sorted out, and it’s really just the natural ebb and flow of businesses like life, with the ups and downs, doesn’t mean it’s all going to hell-in-a-hand-basket.
Check out this chart from Bloomberg. Markets go up three times more than they go down. Well, this is true of the S&P 500 anyways. (The S&P 500 is the Standard & Poor’s (a rating/analysis agency) top 500 stocks in the American economy based on market capitalization (or basically the largest 500 publicly traded companies and based on a few other factors) which forms an index and benchmark we use as one of the leading indicators to measure growth, among other factors.)
BOTTOM LINE: Markets go up more than they go down. Also, another reason why you need to have a good portfolio manager to manage the downside risk, and stay invested for the long haul.
