No Cure for Market Altitude Sickness

Today’s highlights include; market mind games, fiscal cliffs, the next 35 years on repeat and the same old fears and same old crimes (and if you’re a Chicagoan, Go Cubs!).  

So here we are in the window where market onlookers imagine terrible things to come, like whether it will breakout or breakdown…

What my gut tells me is that market chop is likely, and that churn is good…as are setbacks. They shake the dead leaves from the trees, so to speak. And with the US Presidential elections dead ahead, there’s lots of fear already in place for the market dread that usually accompanies the month of October – the month attributed with crashes like 1929, 1987 etc. 

And it’s a very human response to settle into concerns before assuming an upside when the markets are near record highs. I call it market altitude sickness. And it has no known cure.

The problem is that there’s never any "right price level." 

A 2,000-point drop will only make you more afraid of the future, instead of turning you into a long-term buyer.  And yet a 2,000-point rise will just make you feel even dizzier and prices will be "farther out of whack." 

Yep, it's a lose-lose game in the collective mind of the investor herd.

The Wasted Mania

All of this pushes investors to partake in the nightmarish fantasies dreamed up by the black-swan-hunters who use solemnity as a weapon across the media channels.

Think about it: When is the last time you heard a line like, "All is going to turn out ok...just keep moving forward."

After all, that giant mountain you see on a price chart of the stock market over the last 35 years must come to a terrible end, right?  It's been doing this for like 200 years, so it cannot possibly keep going…Just look at it:

Horrible how it just keeps ascending, eh? Something will happen beyond the long line of carcasses of expert opinions. 

And then it hit me…I saw this same thing back in the early 1980s. 

Here is that same chart - chopped off in time - to help you understand that this mind-game is nothing new.  

Boy, that’s spooky!

I mean, who in their right mind would invest in that ugly looking thing? 

The second chart is the same as the first chart, just cut off in 1981.  That was just before the real fireworks started as the Baby Boomers came of age.

Markets rose 18 times over during the next 34 years while everyone learned to fear "the next thing" so well that they were blinded to the records being created along the way.

Don't Play That Game Anymore.... 

There is risk in all elements of investing; your mattress, your bank, the chest in the backyard, the cans in your bomb shelter, the gold coins in your vault and every single thing you will ever invest money in.  

Risk Management Cost?

I have a question for you though.  In 1990, who really risked more:

• Those who in 1980 focused on the horrible events unfolding then and in recent years - OPEC, the oil embargo, runaway inflation, 20% prime rates, 17% mortgages, M2 money supply and the dreaded $1 a gallon gas price, or
• Those who stayed on their pathway, stuck to their plan, ignored the garbage spewing from the then only 3-channel airwaves, allowed for all of the guaranteed ups and downs over time (requirements in any market) and focused instead on the long-term requirement of investing for and accruing wealth?

Same Song, New Verse

The latter group ended up on a far different financial trajectory than the first by the time 1990 rolled around.

So, human nature is unlikely to ever change.  Our emotions only become more highly charged during times of stress, often fooling us into things/actions which only make us feel poorer later.  We all know it. But show me 1,000 points down over a few weeks or even hours and I’ll show you the very same reactions we have witnessed for decades.

It's why I always loved this line from the song Iron Hand: "Same old fears and same old crimes, we haven't changed since ancient times."

Here’s A Promise

The next 35 years will likely be as difficult and stressful as the last 35 years.  It's called life.  It will pitch us to and fro, the markets will struggle with many things, and there will be more bad actors, fraud, deceit, natural disasters, terrorism, wars, destruction, risk, recessions, bear markets, and more...just like the last 35 years. 

The problem - too many investors forgot to stay focused on what the markets did WHILE those very same terrible, perplexing and fear-laden events unfolded. 

Yes, they did go down (sometimes harshly). But they went back up more.

Those who benefited from the "went back up more" were those few who could stay focused on their plan and their long-term views.  They also needed to learn to ignore the constant cry of the siren calls of Armageddon and the Apocalypse.

A proper plan manages risk and puts time in perspective.

Power Beneath the Noise

In 1982, I was told the market had been a bull for seven years as it recovered from the collapse in 1975, during the oil embargo.  My response was, "No, it was recovering for 7 years back to its old highs.  The new bull market only begins after new highs."

And it’s been doing that same “recovering” process for the five years following the lows of 2009.

What that means is that this new bull market is still a young pup, and not an aged animal.

And the economy we’re seeing unfold will change everything we think we know about today.

The dynamic world of tomorrow is set to be as surprising to us all as it would have been to someone back in 1982, who was tasked with trying to explain an iPhone to anyone who would listen.