BETTER NEVER THAN LATE (OR WRONG)
I often start our firm’s morning check in call from my kitchen or car, and so I don’t always get to see faces, being limited to audio for mobility’s sake.
The upside is they can’t see me either, which is good because occasionally I’m sporting bus stop chic while sending the kids off to school.
Had they been able to this morning, they may have seen a light bulb appear comic book style over my head as I heard this lovely soundbite: market pricing factors in all current information.
Like many, some of our clients are afraid of an impending recession, so marked by official announcement, and they understandably worry about the what ifs. If that’s you, give us a ring. We want to help you quell any anxiety before it turns into ill-advised action.
Media speculation cannot be trusted. Their job is to hook viewers, not help investors. Because fear is the driving force of viewership, what better hook than doomsday predictions about the market’s future and therefore, your own?
Predictions assume foreknowledge of future events. If they worked, they would yield a significant strategic advantage. But they don’t. Stock market predictions over a 1 day to 3 year period are more often wrong than right and following them can lead to disastrous outcomes.
But people continue following them because they need to feel safe in the presence of uncertainty. In reality feeling safe is not the same as being safe.
It’s easy to look back and see what you should have done, but much harder to choose in real time, facing the unknown. The overall failure of predictions proves this.
Market pricing factors in all current information. In other words, the market’s pricing is the frontline barometer of our collective human emotion that drives things up or down. Your worries aren’t ahead of it.
Sure, future information could change things, but, as this one-pager from DFA shows, announcements of market events are typically behind the actual market movement. Not to be scary, but what you’re worried about coming may already be here.
The good news? You don’t have to do anything about it. Like DFA notes, you are better positioned for long term success if you stick to your plan, tune out the noise, and avoid headlines that have the benefit of hindsight. Remember, discipline is key.
DIMENSIONAL FUND DISCLOSURES
Start and end dates of US recessions, along with announcement dates, are from the National Bureau of Economic Research (NBER).
nber.org/research/data/us-business-cycle-expansions-and-contractions and
nber.org/research/business-cycle-dating/business-cycle-dating-committee-announcements
Decline based on the S&P 500 Index’s price difference between the actual start of the recession in December 2007 and the official “in recession” announcement 12 months later.
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In US dollars. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
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