Actual Facts

Michael published an important reminder last night, some actual facts that are undeniable and must be reckoned with by all market participants – buy and hold is simple but not easy. There are periods of time, like the one depicted in the chart below, during which your patience will earn you nothing:

Below is the Dow Jones Industrial Average from 1966-1981. Over this 16 year period, the Dow fell 9% (gained 10% including dividends). Investors who took risk were rewarded with a ton of risk. This can happen. When you buy and you hold, you can expect stock-like volatility. Returns however, are not guaranteed.

But the answer to this is probably not “trading” for most people, because trading is even harder than accepting no return for taking risk. If you know someone who perfectly nailed yesterday’s action, they deserve a Nobel Prize. If you know someone who not only nailed yesterday’s action, but have a process that can allow them to do this repeatedly, they will ultimately become a trillionaire.

 Because it was ludicrous, devoid of any meaningful signals, rhymes or reasons.

Here’s Michael writing at the close:

Last week, the S&P 500 had its worst week in over two years. 4.5% of the week’s 6% decline came during the last two days alone. If you are an active market participant, I assume you took your equity exposure down.

And today, when the S&P 500 gapped up 1.2%, you were probably hoping for the fade, which you got. By 11:15, it had declined 1.4% from its morning highs. And then it rallied 2.18% for the rest of the day, closing near the highs.

Those are huge percentage falls and leaps, occurring at random and most likely driven by software programs and algorithms that do not concern themselves with wrapping up their reasoning into a tidy little bow of logic. And the remainder of market actors – including other software programs – get dragged along with them.

Make sure you read his whole post.

These are actual facts. No way around them.


Sometimes This Sucks (The Irrelevant Investor)

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