Summer has arrived. With the opening of the economy, I hope more of you can get some quality time away this summer. I know my family and I are looking forward to our summer vacation. I wish everyone a summer full of fun and good experiences.
We can all improve ourselves. We can change our habits and increase our productivity and efficiency. I enjoy articles suggesting ways we can improve. Two of this week’s articles offer some solid suggestions. I have adopted some of them. I hope you find them useful, too.
I would like to preface what follows with a reminder that none of us can forecast market returns. All roads do not point to the sky. At some point, the market will turn lower. The market will correct – at least a 10% decline – on multiple occasions. We will experience bear markets – a decline of more than 20% – in the future, too. At the same time, when we invest, we take the view that the market’s long-term direction is up.
Since we can’t predict the market, we shouldn’t spend too much time focusing on its daily movements. The past two weeks provide a good reminder of why looking at the market every day can be bad for your mental health. When I wrote my last market commentary, the S&P 500 Index closed at 4239.18. It rose each of the next two days. After that, the S&P fell for four consecutive days. It finished the week down 1.9%.
Last week was the S&P’s worst since the last week of January. Continued inflation fears and worries that the Fed would increase interest rates sooner-than-expected, helped push stocks lower. But it’s a new week. The S&P has delivered four straight daily gains. The S&P closed at an all-time high on Thursday. Last week’s discussions about the falling market and concerns about how long it might last are in the past.
The S&P closed Thursday at another record high. Over the last two weeks, the S&P is up 0.7%. If the S&P averaged that kind of gain all year long, it would deliver an above-average return. But if you looked at the market only at the beginning and end of the two-week period, you might not notice that change. You also wouldn’t have experienced any anguish over last week's market’s decline.
In this case, I highlighted how you could have avoided the discomfort caused by a falling market if you ignored it for the past two weeks. This week’s third article takes an even longer-term perspective. It provides returns for various asset classes over the last 200 years.
The S&P is up 2.0% so far this month; 7.4% quarter-to-date; and 13.6% year-to-date. The S&P gained 16.3% last year. Investors have fared well so far this year, too.
Concerns about inflation and higher interest rates still hang over the market. Prices have increased. Are the factors driving prices higher short- or long-term in nature? We’ve seen lumber prices surge and then retreat. Will that be the case with other items reportedly in short supply? That’s the question investors and the Federal Reserve are trying to answer.
Remember that none of us have a crystal ball or a clear vision of the future. Do you know of a market forecaster that gets things right consistently? I know I don’t. The typical track record includes many more incorrect predictions than correct ones.
When I was an energy analyst, one of my jobs was to forecast oil prices. I did that for about seven years. I hit the number on the nose once. That was pure luck. I still find little reason not to remain focused on our process and maintain our long-term focus. Our long-term market outlook continues to be positive.
Click here for a video overview of this week’s content.
Here are the links to this week’s articles as well as a brief description of each:
1. How to Do Long Term. As investors, most of us know that taking a long-term view is the right approach. But when push comes to shove, we find it hard to execute that strategy. Thinking long-term requires more than increased patience. But lack of patience does not explain why some people struggle to think and act long term. In this article, Morgan Housel, one of today’s most respected writers on personal finance, shares his thoughts on things you have to come to terms with to effectively take a long-term approach.
2. 5 Morning Habits of Highly Successful People. Do you start your day with an alarm clock, a cup of coffee, and a glance at your email? Many do. According to this article, those are the things very successful people don’t do first thing. How do successful people start their day? Click the link to find out. As Apprise’s business grows, I find my morning habits have changed. Room for improvement exists. But consistency helps. So does ditching some counterproductive habits.
3. 200+ Years of Asset Class Returns. We often talk or read about the benefits of diversified portfolios. Why? Returns fluctuate. We have no way of knowing which asset class will provide the best returns over a given period. When it comes to stocks, short-term returns can be highly unpredictable. Over the long term, returns have been much more stable. If you want to dig into the details behind long-term returns, the data shared in this article came from Deutsche Bank Research’s Long-Term Asset Return Study.
4. 99 Additional Bits of Unsolicited Advice. I enjoy reading articles like this one. I always find at least one or two pearls of wisdom in them. Among my favorites:
· It’s not an apology if it comes with an excuse. It is not a compliment if it comes with a request.
· Contemplating the weaknesses in others is easy; contemplating the weaknesses in yourself is hard, but it pays a much higher reward.
· Avoid hitting the snooze button. That’s just training you to oversleep.
I hadn’t thought of the last one in quite that way. I never hit the snooze button though. Most of the time I wake up a few minutes before my alarm goes off and get out of bed. If my alarm does wake me up, I pop out of bed immediately. It’s time to exercise and get my day started.
5. Who’s Influenced by Behavioral Biases? Everyone. When investing, our emotions can get in our way. When speaking with prospects, I say that the two worst things we can do as investors are, “Buy high and sell low.” Processes can help eliminate the role emotions have on your investments. This article takes a look at the financial impact of investing biases. It focuses on the following:
· Present bias
· Base rate neglect
· Loss aversion
Advisors are not immune to these biases. Knowing they exist can help you address them though. For more information on behavioral investing concepts, please check this blog.
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