Many investors today unknowingly act like speculators. How do I know this? Because they are more concerned and influenced by short-term stochastic changes in stock prices than in the underlying fundamentals of a company. And when coupled with a barrage of negative news stories, it can be very difficult to act like an investor.
Where Are the Investors?
Just this quarter we had a lot of news about inflation, a few bank failures, and predictions of recessions. Very few, if any, of the headlines were positive. And what was the result? The largest rush to cash since 2008. Year-to-date through mid-March, stock funds experienced $22 billion in withdrawals while money market funds increased by $97 billion.1
Despite this rush to cash, which is common among speculators (so-called “investors”), the S&P 500 index is up about 6% for the year.2
Am I Investing?
If you are moving to cash or bonds during an uncertain time, you are not investing. You are emotionalizing (acting on emotions) and reacting to short-term market dynamics that may have a significant long-term cost.
Moving to cash is nothing more than trading potential long-term growth for temporary relief from negative news and stock price fluctuations. It is not investing.
Investing is owning securities for the long-term with recognition that the capital markets have always been uncertain and experienced fluctuation. Investors enter the “game” understanding that uncertainty and temporary negative returns are the price one must pay to participate in the long-term wealth generating power of capital markets.
Being an investor is not easy, but essential to help you achieve your goals. Patience and discipline are difficult especially when facing uncertainty and negative outlooks, but that is the reality of capital markets. Most short-term market outcomes (price movements & news) are nothing more than noise. That is why you have me; I will help you know what information is pertinent and helpful to reach your goals.
©The Behavioral Finance Network
- Refinitiv Lipper,as reported in Barron’s, March 19, 2023
- S&P 500 Index Jan 1, 2023 – Mar 30, 2023