Do you remember the time Winona Ryder was caught shoplifting trivial items? Maybe not; it happened about 18 or 19 years ago, and she certainly isn’t the big name now that she was back then. Maybe you’ve never even heard of her! Well, she was a A-list actress in the 90s that started to fade from the spotlight in the early 00s. One day, apparently, she decided that bad publicity was better than no publicity (as most entertainers seem to feel), so she shoplifted a few small items that she could easily have afforded to buy a truckload of without missing the money.
Again, she did what she did because she wasn’t getting the level of attention in the press she wanted and used to get (at least according to the media), so she decided bad press was better than no press. Guess what, the financial markets have a similar mindset, but with a slightly different twist: in most cases (catastrophes excepted) markets like bad news better than no news. I’ve said it many times before, on this blog, in my classes, and in my book: the things markets dislike the most is uncertainty.
Unfortunately, there is a well-above average level of uncertainty in the world right now, to say the least. This is of course being caused by the U.S. election and the Coronavirus, and as uncertainty always does, it’s leading to a great deal of volatility, particularly in the stock market.
Over the past several weeks, and really over about the last 6-7 months, I’ve read many, many articles giving advice as to what you should do during these turbulent times. “Buy this, don’t buy that, sell all of your investments and hold nothing but cash, don’t hold any cash, buy gold, move to another planet….”. Ok, I haven’t read the last one yet, but if I did it wouldn’t be much more useless than a lot of the other things I’ve been reading.
Most of the “advice” I’m seeing on financial websites boils down to one thing: market timing. Market timing involves making investment decisions based on what you think will happen to the markets or individual sectors of the markets. When you do this, you are essentially making bets on where you think the market will go. Yes, bets.
The whole point of increased uncertainty is: we don’t know what is going to happen; that’s why it’s called uncertainty! Uncertainty leads to volatility, which means we’re watching the value of our investments, or the price of investments we’re considering buying, go haywire. Maybe they’re going way up, or way down, or they’re on a nuclear-powered roller coaster ride. But people that tell you they know where the markets are headed, or the economy, or whatever in this period of extreme uncertainty, are fooling themselves and/or you.
I’ve also said many times (and even in my previous post) that the best thing to do with your long-term strategy in times like these is to do nothing at all. And I stand by that. I know that’s not exciting, but if you build your wealth the right way (which gives you a much greater chance of actually building wealth), the excitement will come, believe me!
If you do want to do something constructive though during this time of uncertainty, here is what I recommend: allocate more of your income to savings than you normally do, as long as it doesn’t negatively impact your life (i.e. don’t put a strain on your budget in terms of affording life’s true necessities such as rent and food). Building up some extra cash right now if you can afford it is a very good idea, but don’t sell any investments to do it. When times return to more of a normal posture, you can use your savings to build your portfolio of assets a little quicker than you normally world.
One thing I would certainly resist the urge to do right now is buy gold. The price of gold usually rises during troubled times, and when that happens the gold hype mongers come pouring out of the woodwork, as they are now. I won’t repeat my previous post on gold, but I will say this: ok, gold goes up when problems in the world are on the rise. People buy gold as a supposedly safe haven. Most people buy when the prices have already risen substantially, and then as the global situation improves, the price generally falls. This is when most people get out. If you follow this pattern, here is what you have done: bought high, sold low. I think you know where that will get you in the long run, and why it bothers me when I read the “BUY GOLD NOW” articles. I want to help you build your assets over the course of your lifetime, not throw them away.
If you really must make bets, please at least do it with your play money, not your serious investing money. I’ll be talking a lot more about separating the two in upcoming posts. I’ll also be talking a lot more soon about how to start building the core of an outstanding long-term investment portfolio, and also about some more things you can look for if you’re interested in individual stocks as you’re starting your investing life. But in the meantime…please don’t bet with the money you need to improve your life!
Thank you for the information!