The Stock Market Isn't Rational and Other Points to Ponder

Feb 23, 2018
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When the tide goes out

“A portfolio that gets so scary that you bail out at the bottom is destined to fail. There will always be apparent dangers and steep declines.” – Jeff Miller, encouraging readers of his Dash of Insight blog on 2/17/17 to consider whether their reactions to recent market volatility mean they have taken on more risk than they can handle. Read more

A portfolio for any type of weather

“Size your position in risk assets to the level where you can live with it under bad conditions, and be happy with it under good conditions. Then when markets get weird, you can smile and bear it. The most important thing is to stay in the game, not giving in to panic or greed when things get ‘weird.’” – David Merkel, writing on The Aleph Blog on 2/6/18 that market volatility is normal; what was strange was the lack of volatility throughout 2017. Read more

A winning strategy will only take you so far

“What if a critical ingredient to being a successful investor isn’t exactly which strategy you follow? It’s that you have faith in that strategy? By faith I mean the ability to take the leap into risking your money without guarantees, and to continue to adhere to the strategy, even in the face of disappointing results. Markets must crash. Active strategies must underperform. Chasing performance produces lower returns. Buffett underperformed by 67% at one point. Even a clairvoyant who knew exactly what stocks would perform best would get fired, because the journey would be so terrifying. An investor without a faith is doomed.” – Daniel Egan, writing on 2/11/18 about the under-appreciated importance of finding the intestinal fortitude to stay with your chosen strategy. Read more

Take the long view

“So, if you knew nothing else about anything, you would know this: Stop sweating the orange stuff. It’s part and parcel to the game and included in the overall package. Focus on the blue. Take more TUMS during the orange, or walk on the beach, laugh with your kids, sail the ocean or listen to the waves. And then be thankful for what’s coming after the orange.” – Mike Williams, Founder and Managing Partner at Alan Steel Asset Management, writing on 2/19/18 about a chart showing all the bear markets (in orange) and bull markets (in blue) since 1926. It shows clearly that the bull markets have lasted much longer than bear markets and added much more value than bear markets have subtracted. See the chart and read more

The stock market isn’t rational

“Over thousands of years, mankind learned to obey the laws of physics or suffer the consequences. Then the stock market came along, and with it, strange and conflicting ideas that challenge how we’ve been conditioned to view physics.” – Brian Lund, writing on his The Lund Loop blog about the mysteries of stock-market movements. Read more

Bitcoin’s uncertain future

“The investment case for cryptocurrencies is weak.… To date, their prices have depended more on speculation about their eventual adoption and use. The speculation creates volatility that, ironically, undermines their value as a currency.… I see a decent probability that its price goes to zero.” – Joe Davis, Vanguard’s global chief economist and head of Vanguard Investment Strategy Group, writing about Bitcoin in the Vanguard Blog on 2/6/18. Davis said while he’s enthusiastic about the blockchain technology that makes Bitcoin possible, “with no cash flows and extreme volatility,” the investment case for Bitcoin itself is “hardly compelling.” Read more

What will you leave behind?

“The greatest legacy one can pass on to one’s children and grandchildren is not money or other material things accumulated in one’s life, but rather a legacy of character and faith.” – Billy Graham, who passed away on 2/21/18.

Written by

Matt Bell

Matt Bell

Matt Bell is Sound Mind Investing's Managing Editor. He is the author of five biblical money management books and the teacher or co-teacher on three video-based small group resources. His latest book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management, was published by Focus on the Family in 2023. Matt has spoken at churches, universities, and conferences throughout the country and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

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