FIVE THINGS YOU SHOULD KNOW
INSIGHTS for INVESTORS
I hope you’ll take some time to watch the video above as it’s an important message about where to place your focus, especially during tough markets. One of the greatest logical errors investors make is “anchoring” on random benchmarks or timeframes to determine their outlook, contentment, and next steps within their portfolio.
The issue is, much of the time these anchors are based far more on emotion or short-term thinking than something that can logically help them achieve their ultimate goals.
Common misleading/misguided anchors include things such as:
What do any of those have to do with your long-term goals? How does one asset class’s past performance tell you anything about the future performance of that asset class, let alone another one? Answer…they don’t.
The far more constructive mindset is to focus on those things you can control regarding your portfolio (see video above):
a) your investing timeframes,
b) your ability to save/dollar cost average,
c)income production to help you avoid forced selling or even buying assets on sale,
d)and finally, how you diversify your portfolio to be able to reduce volatility and/or rebalance to take advantage of market weakness.
Two weeks ago, we discussed “worry” as it relates to one’s journey as an investor. At that time, the chorus was growing louder about all the possible issues that could spell doom for the equity markets from inflation/the Fed, and Omicron, to the labor market. Such concerns persist and are used (falsely) to explain the markets slight uptick in volatility.
Here we sit just a couple weeks later, post big Fed meeting that had markets nervous, and the S&P is up 2% over that time and just barely off its all-time high (both random anchors themselves, but hardly the Armageddon stats people were expecting).
As we discussed in that week’s commentary, and many others, trying to trade COVID or the Fed’s next move is a fool’s errand and one that has cost people a lot of money.
Consider Wednesday’s Fed announcement that they would be stepping up their taper of bond purchases and are planning to rate hike three times in 2022. Up until yesterday, consensus would have assumed, and did, that such an announcement would send equities plummeting and instead the market posted its best day of the year, up over 1.5%. As we alluded to on December 3rd, we still believe that inflation is likely to slow into the new year, to a degree, and coupled with COVID, will give the Fed cover to turn more dovish than they outlined yesterday which should be a catalyst for the market to reach higher levels.
Similarly, we discussed the week’s job’s print that week and how we thought it was an anomaly on the way to better reports. The subsequent jobless claims posted a 52-YEAR low, and this week’s report was barely above that. Furthermore, as JPMorgan pointed out “Much more critical is the labor force participation rate, which saw a healthy gain in November, edging up to 61.8% and breaking free from the 61.5%-61.7% range that it has been stuck at since mid-2020.” See chart below.
While the talking heads and doomsayers will try to describe today’s market decline as the beginning of impending doom, it is far more accurately explained by technical analysis, as in today’s triple witching options expirations (defined as “the simultaneous expiration of stock options, stock index futures, and stock index options contracts all on the same trading day”), or current volatility levels relative to recent ranges. You don’t hear about these things because they aren’t easy to explain or grasp but have far more to do with day-to-day movements than the common narratives. They also go a long way to help one look past the inevitable random day to day volatility to keep one’s focus on the bigger picture, which for many of our trusted analysts includes continued improving economic data, such as; this week’s industrial production and retail sales numbers, and an intermediate target for the S&P 500 of 5,000 to 5,250 over the next 12 months.
Being bearish is attractive because it feels smart. People too easily confuse being critical with critical thinking. People also subconsciously assume that somehow worrying or assuming the worst will protect them – it doesn’t. Having a healthy perspective, sound plan and knowledgeable partner as you walk the path to financial stability or freedom is the best way to achieve one’s goals and avoid serious setbacks.
In summary, your superpowers to fight back against tough markets are about shifting your perspective to things you can control and anchors that are constructive, building a plan that works for you and your goals even when the market isn’t, and finding a partner that can help with both.
I’ll leave you with a great short piece from famed business blogger Seth Godin, related to this topic of healthy mindsets.
Do you feel rich? by Seth Godin
“It’s not the same as being rich.
Rich is always relative. Compared to your great-grandparents, we’re impossibly, supernaturally rich. We have access to information and technology that was unimagined a century ago. At the same time, compared to someone ten miles away or ten years in the future, we’re way behind.
Two people with precisely the same resources and options might answer the question of ‘rich’ completely differently. Because money is a story.
The neighborhood or industry or peer group you choose has a lot to do with whether you’re relatively rich or not.
After a stock market adjustment, billionaires give less to charity. They still have more money than they can count, but they’re not as rich as they used to be, and not-as-rich is easy to interpret as not rich.
Which means that for many people, feeling rich is a choice.
If that choice encourages us to be imperious, selfish and a bully, it’s probably best to avoid it.
On the other hand, if choosing to see our choices, chances and privileges as a path toward generosity, long-term thinking and connection, we can do it right now.”
Have a wonderful weekend!
Tim and the team at TEN Capital