MARKETS DON’T REMEMBER
I hope you’re a little bit of a nerd so you can relate to this. Have you ever opened to the first page on a fresh notepad or sketchbook and been just a little bit…excited?
I have and do, every time. I think that’s because a blank page is boundless possibility, a chance to make every page great, whatever that means to you. This is especially true of the sketchbook. An artist leaves bits of themselves on each page and so the paper becomes an extension of their psyche.
The excitement for me, however, has its origin in self-improvement. I set new intentions and expectations and enjoy the challenge of trying to meet them, all the while knowing at least one of my fatal flaws will likely stop me from sustaining this level of commitment in the long run.
What does this have to do with markets, investing, or anything you actually do for a living?
The markets, according to this article from Dimensional Fund Advisors, don’t have memories. They’re a blank slate every day, and DFA does a good job of explaining why.
People, however, do. We adjust our behaviors based on those memories and experiences. The result? Any blank slates we get are not truly blank. We’ve already established an invisible blueprint through our hermeneutical lenses.
Often times, our behaviors are geared toward control, resulting in somewhat predictable reactionary moves. Many investors try to “time” or “predict” the markets because of it. It’s a self-preservation maneuver with a historically high failure rate.
DFA’s advice here mirrors our own:
“Because of big swings year to year, trying to time markets is a losing game. So don’t try to outguess markets—go with them. Come up with a plan, take no more risk than you can tolerate, and go spend some time with your loved ones.”
Coming up with a plan is no simple task and one you should not undertake lightly. You’ll need to have a realistic look at your goals and values, personal finances, risk tolerance and more before you’ll be in position to make decisions that ultimately define your plan.
It takes time, energy, and money to create a realistic and sustainable plan. But, properly done, it should give you two things I find invaluable: peace of mind and time for the people and things you love.