When markets get scary, play the long game: Morning Brief

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Tuesday, September 13, 2022

Today’s newsletter is from sam rothe author of TKer.co. Follow him on Twitter at @SamRo.

We are a long way from 1995. Image courtesy of Sam Ro.

When uncertainty increases in the world, it’s easy to let fear take over and allow self-doubt to poison your investment decisions.

This year, high inflation and geopolitical tensions have been among the fear factors driving down share prices.

But the stock market has an impressive track record of beating nearly insurmountable odds.

Barry Ritholtz, co-founder and CIO of Ritholtz Wealth Management, recently shared an idea attributed to David Booth, co-founder of Dimensional Fund Advisors:

“25 years ago, your crystal ball reveals: Russian debt default, LTCM failure, DotCom implosion, 9/11 attacks, financial crisis + great recession, pandemic that killed millions, 3 market crashes. Would you put your money in stocks? Nope? You missed a 10X return.”

At Monday’s close of 4,110, the S&P 500 is down significantly from its January high of 4,818. But the index is still well above 481, which it last saw in 1995.

The quote reminded me of something Warren Buffett said In a New York Times op-ed during the depths of the global financial crisis:

“Long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and costly military conflicts; the Depression; a dozen financial recessions and panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. However, the Dow rose from 66 to 11,497.”

Earlier this year, BlackRock’s Daniel Prince shared which is effectively an illustrated version of these quotes on this long-term annotated chart of the S&P 500.

Image: Black Rock

Image: Black Rock

“When times are tough, we want to limit our losses,” Prince wrote. “Even when things are going well, we wish we had invested more. We are all afraid of missing something.”

“But when you’re investing, giving in to fear is often a losing strategy,” he added. “Most of the time, investors with this mindset tend to buy high and sell low, investing more in a bull market and withdrawing money in a bear market.”

Investing means understanding that there will be unexpected bumps in the road to achieving longer-term financial goals. And those hits can be substantial. But it’s part of the deal. In fact, this risk is exactly why returns in the stock market can be relatively high.

It is almost impossible to ignore the barrage of headlines that will make you second-guess your investment decisions. So, if you find yourself worried about short-term concerns, be sure to also remember the stock market’s long-term success story.

what to see today

economic calendar

  • 7:00 a.m. Eastern Time: NFIB Small Business OptimismAugust (90.1 expected, 89.9 during the previous month)

  • 8:30 a.m. Eastern Time: Consumer’s price indexmonth over month, August (-0.1% expected, 1.3% over the previous month)

  • 8:30 a.m. Eastern Time: CPI without food or energymonth over month, August (0.3% expected, 0.3% over the previous month)

  • 8:30 a.m. Eastern Time: CPI, year over yearAugust (8.1% expected, 8.5% during the previous month)

  • 8:30 a.m. Eastern Time: CPI without food or energyyear over year, August (6.1% expected, 5.9% over the previous month)

Profits

Yahoo Finance Highlights

Inflation: Consumer prices are likely to moderate for the second month in a row in August

Twitter whistleblower; founder of Nikola; and trial of former Uber executive: legal stories to see

Energy stocks ‘look extremely attractive,’ says portfolio manager

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