The most asked question I have had in my career is some version of "When is it a good time to invest?" I casually walk over to my desk, buried under napkins, unused folders, and a bag of chips is my favorite crystal ball. I get it out, dust it off, and peer into it as I ask what the future holds. Sometimes, I move my hands around the ball if I feel extra theatrical. After around thirty to sixty seconds, I get my answer: the ball shows nothing because crystal balls don't work. Which brings me to fact number 1: No one knows what tomorrow holds.
Because fact 1 is, in fact, a fact, that leads us to fact number 2: long-term investing is based on long-term researchable macro trends and long-term strategies implemented by businesses that are also researchable. Short-term investing is investing in human emotion and nothing more. The global markets are selling off today, August 5th, 2024, at 1:33 pm. The reason for that depends on your interpretation of the last few months, but the most common answer is that the Jobs report from last week showed a cooling labor market. Unemployment ticked up, and the American economy didn't add as many jobs as was expected. It still added jobs, just fewer jobs than expected, which has translated into a market panic.
Just a month ago, we were told that the economy was so strong that the Federal Reserve would not cut this year. Those same people are now saying the FED has made a policy error by not cutting in July, and their failure to act will result in a recession or hard landing.
I have four children, all girls, and anyone with children will understand this: humans are born with fully-formed emotional capacities and not fully-formed logical brains. In the long term, my girls will grow to be fully functioning adults in control of their emotions and able to process complex thoughts very well. We are learning how to do that right now, and it's challenging. The reason it's difficult is because, in the short term, each of my daughters has at least six different personalities that can appear and disappear at any moment. The movie inside out does an excellent job of illustrating that point. In the short term, it's impossible to know what my daughters will think up and do on any day; in the long term, I have a good sense of how things may shake out, and frankly, the market is the same.
Because human emotion is unpredictable, I will always discourage investors from making decisions based on the short term. Should you shift your holdings? Should you get in or out? What will my third oldest daughter wear tomorrow at 3 pm, and what will she want for dinner? Will it be a princess dress or a swimsuit? Will she suddenly decide she no longer likes chicken nuggets, even though she's made terroristic threats about not having them before? Your guess is as good as mine. However, in the long term, she will chill out, there will be a fusion between her emotions and her logic, and she and I will forget all about that time she decided to hang a hammock in our living room that resulted in the breaking of a lamp, curtain rod, and a brand new blanket. The same principle applies to the market; short-term volatility is best ignored in favor of a long-term strategy.
Fact number 3: Most people who are quick to speak are more concerned with pulling your emotional strings rather than giving you good advice. I got on X, formerly Twitter, today to see what people had to say. What is the opposite of enlightened? Because that is how I feel every time I consult X for advice. Many people are out there battling to be heard and showcase their agenda. My advice to you is don't let their agenda change yours.
I have done this long enough to know that the people screaming "crash" always scream crash. It's a weird dynamic in this industry where people who take perpetual pessimistic outlooks seem to anoint themselves with a particular brand of self-created intellectual sobriety oil. It's odd that in times of market turbulence, the idea of being optimistic about growth is looked down upon as ignorant. It all plays into some of the dysfunction you see in this industry that marinates a base of talking heads and investors who love to scream, "I TOLD YOU SO," any time the market goes down at all. Another weird part is that they never leave a forwarding address for when the market is right back up at all-time highs, usually sooner rather than later. Where do they all go?
Here is my point: markets are emotional in the short term and logical in the long term (generally). Today is a short-term day. Headlines won't help you make better investment decisions. Go out to eat, have a drink with friends, call an old buddy, and you'll realize the world is, in fact, still turning. In time, this day, like all the others, will show that the reports of the markets' collapse have been greatly exaggerated.