Voting vs Weighing

Billionaire Warren Buffett has said many times: “In the short-term, the stock market is a voting machine. In the long-term, it is a weighing machine."

And right now we’re watching the “voting process” unfold. 

Dumb decisions are being made in the heat of battle; investors are fighting fear with rash, knee-jerk responses, and short-term actions are leading to long-term mistakes.

Now, we all know that it feels much better to see only “green ink” and stock market numbers ratchet upwards. But volatility is both normal and should be expected. It’s part of the deal.

Think about it this way: If you fell asleep on New Year's Eve and woke up 5 minutes ago, this is the data you would have been faced with last week:

• The S&P 500 (equal-weighted) for 2018: -1.83
• The NYSE Composite for 2018: -3.37
• The Value-Line Index for 2018: -2.61
• The NASDAQ for 2018: 3.81

There are some red numbers in there, and yes, they could very likely get larger.

But after two years of a combined upside, closing in on 30%, is a 5% or 10% temporary giveback really something to go haywire over? 

In a word: No.

A trade-range is perfectly normal. Setbacks from highs after a big run are perfectly normal.  And the fear it is instilling is also perfectly normal. 

The only difference from the previous times this has happened is that the numbers are larger, and because of that they sound scarier.

But if you look at that fact in a more positive way you’ll realise that the heights reached by the market are record-setting.

And the only bad news in that is they will get larger and scarier in the future. 

So get a grip.

The weighing machine part is the bit you want to focus on.

"I'll Be Back"

That’s not Schwarzenegger talking.

That’s fear.

And it’s alive and well, and hanging like a dark cloud over what are essentially some pretty rosy economic and market indicators.

See all the red in the data above?

Think of it like long-term dollar signs if you can take the short-term heat. 

Now, the data below shows what it looks like long-term as we gauge today's reading against all the readings of the last several years:

Bad JuJu

Listen, like it or not - short-term pain almost always (historically) leads to long-term gain. 

The data above shows we have now returned to fear levels not seen in years.

In fact, the investor crowd is now officially more afraid than it was in February of 2016, when we were in the grips of the worst start to the market in 85 years! 

That was just two years and 8,500 Dow Jones points ago.

So, for those with a short-term mind-set, we are now sitting in a trade range that’s driving a wide swathe of mental damage and price erosion.

According to CNBC last week:

Looks scary, right?

Sure, but here’s the chart they don’t show you:

So which one are you going to pay attention to?

My Hunches? 

China will retaliate in the trading tariff stakes. But they’re also going to recognise that you cannot keep stealing stuff. Level heads will prevail, new agreements will be made and the world will keep on ticking. That’s because they know what everyone else knows: No healthy US, no healthy China.

Also, somewhere in all this mess, Mr Buffett is going to arrive on the scene and buy something. Something big.

You can just bet he’s chomping at the bit to spend some of that $130 Billion in his money market account. 

Voting and weighing.

Which measure are you using?