“A genius is the man who can do
the average thing
when everyone else around him
is losing his mind.”
— Napoleon Bonaparte
This quote was used by Napoleon in the context of military battles, but it can easily apply to the tumultuous year we had in the stock market. From February to March of 2020, a 60-day period, the S&P 500 fell 33.5%. The market then rallied 65.5% from the low until the end of the year. Now, we have the YOLO (You-Only-Live-Once) speculative trades happening in stocks like shopping mall staples, GameStop, and AMC Movie Theaters. One of our advisors, Rachel, wrote a piece on this very topic that you can find here: kwbwealth.com/blogs/beating-wall-street
At the end of the piece, Rachel comments on how investing should be “boring.” And over the long-term investing is very, very boring. Even though this hasn’t been the case lately, did you know that on average, the S&P 500 only moves up or down about 0.1% per day? And historically, there has been about a 54% chance the market is up on any given day versus a 46% chance the market will be down? Throughout history, all the gains made by the S&P 500 are because the market is up 0.1% more days than down 0.1%. It’s like watching paint dry. If only your brain would allow you to put on the blinders and focus on those small gains over the long-term.
Unfortunately, your brain doesn’t want you to sit idly by. It wants to respond to every threat (Fight or Flight) and every opportunity (Fear of Missing Out or FOMO). I believe the harder of the two emotions to dismiss is FOMO. Whether it’s missing out on a trip with your friends or going to the bathroom and missing that big play in the game, or not buying that stock that went up 1,000% in a few weeks. Most of us have heard the stories of the college kid that makes it rich day trading cryptocurrencies, or the stay-at-home mom that became a millionaire buying penny stocks. I have rarely heard the stories on the other side of the spectrum. The doctor that gave up her practice to day-trade and lost it all. The young man that lied, took money from his parents and lost it all. The sad stories don’t “feed the beast” for the financial networks so we don’t get to hear those anecdotes. Believe me, there are more than a few people that got caught up in the GameStop news, bought the stock when it was in the $400 range, and sold it around $100. It just isn’t compelling to tell those stories when the market is going up and up. The sad stories only get told when the market has already fallen significantly. In fact, did you know that “Wall Street Bets,” the Reddit forum where all the GameStop/AMC craziness began, was originally a forum for people to share their investment horror stories!
There is a story I find much more compelling. It’s one that you rarely hear on financial networks, but it happens more often than you know. This story comes from financial author and blogger, Morgan Housel, of the “Collaborative Fund.” It’s the story of Grace Groner.
“Grace Groner was orphaned at age 12. She was never married. She never had kids. She never drove a car. She lived most of her life alone in a one-bedroom house and worked her whole career as a secretary. She was, by all accounts, a lovely lady. But she lived a humble and quiet life. That made the $7 million she left to charity after her death in 2010 at age 100 all the more confusing. People who knew her asked: Where did Grace get all that money?
“But there was no secret. There was no inheritance. Grace took humble savings from a meager salary and enjoyed eighty years of hands-off compounding in the stock market. That was it.”
Blue-collar job, humble life, saved as much as they could while they worked, and retired a millionaire. It’s a wonderful story about accumulating wealth, but it doesn’t make for a very clickable exciting headline. I love the stories because it’s the story of many of our clients. It doesn’t take a financial guru, a high-income earner, or a lucky break to come out ahead when you invest. For the most part, all it takes is having some advice, keeping the blinders on while avoiding the YOLO (speculative) and the FOMO (greed) news, and letting compounding do the heavy lifting for you.
Ultimately, it comes down to understanding how your own brain works to make the most out of your investments. That’s why having a coach or a KWB Wealth Manager help you along the way is so advantageous. We are your sounding board when you need to talk, or your blinders when staying focused and looking ahead is difficult. In other words, do the average, boring things while others are losing their minds and you will end up looking like a genius.
Quick Market Update
The fear right now is that rising interest rates and inflation will derail the economic recovery that most expect in the second half of the year. Although we’ve hit a patch of volatility this past month based on this fear, we are not concerned as pullbacks and corrections are perfectly normal. The $1.9 trillion stimulus bill passed by Congress plus the continued good news regarding vaccinations across the country should mean that the economy will be “back to normal” come summer. Pent-up demand for leisure and travel, along with a glut of savings that have accumulated through the pandemic, should translate into stronger economic growth along with continued strong earnings from corporations. As the saying goes, the market climbs a “wall of worry.” We would be much more concerned if there was nothing for the market to worry about heading into the summer.
As always if you have any questions please contact us and stay safe.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested directly.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investing involves risk including loss of principal.
No strategy assures success or protects against loss. The economic forecasts set forth in this newsletter may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through KWB Wealth, a registered investment advisor and separate entity from LPL Financial.