Wednesday, Aug 14th 2019
Up then down. Up then down. Seems rational right? Your job is to be a composed investor.
We're purposefully being repetitive.
Tuesday markets ripped upwards after Trump suspended plans to impose new tariffs. Then Wednesday markets were down 2% after spooky data from Germany and China.
Up then down. Up then down. Seems rational right? Your job is to be a composed investor. Focus on what you're investing in, not when.
Warren Buffett once said "You may have trouble believing this, but I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good."
We know this is hard, so this is where we take our duty most seriously for you.
"Should I worry about the economy?" No. As we've covered at length, many data points suggest the economy is humming along quite well. But speaking more generally, predicting macro trends just tends not to be a very profitable use of time for most folks.
"So I shouldn't just wait until things become less turbulent?" No. If you've followed us for a while, you'll know that foregone gains are an often overlooked but a very important factor in determining investment outcomes. If you haven't, make sure you're on our email list.
"But what are the best investors doing?" ~90% invested, with roughly ~10% in cash waiting to strike. (In our opinion, roughly).
"How many times has the market experienced a -5% correction during this decade-long bull market?" 25.
"Should I be defensively positioned for optimal risk-reward?" Certainly - in our opinion, one of the best ways to accomplish this is by investing in high-quality compounders - the businesses that have the highest chance of being around after a recession. These corrections can be a great opportunity to pick up these types of companies at a discount.
"While you can't time the market, you can assess price. How do you think about price?" The S&P 500 is offering a ~6% earnings yield today (the reciprocal of the 17x P/E ratio -- it's what a stockholder is effectively being paid to own U.S. stocks). Relative to historical averages, this is in-line, not inflated. In other words, we think the market is offering investors a good price at current levels.
The takeaway: it's totally fine to follow along all the market chatter in the news, but if it affects your composure as an investor, we'd gently nudge you to switch the channel from CNBC to Netflix.
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