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Short-Termism and Market Madness

June 13, 2020

Since this coronavirus thing began, it seems more people have developed a nasty habit of thinking only in short time-frames.

A survival instinct has kicked in, emotions take over, and people simply do whatever feels right today, because tomorrow seems so uncertain.

This seems harmless at first.  But it’s really not.  When we narrow our focus to the short-term, it has long term consequences.  Because chances are, we’ll soon be in that future world we’ve been forgetting about!

Nowhere is this more evident than the chatter around investing and the sharemarket.  The online conversations I’ve seen, the emails I’ve received, and the thought processes being used are just, well, disturbing.

And this is from mostly smart people focused on Financial Independence.  So, it’s time to clear up the confusion, slay some mythical dragons and help get everyone’s collective shit together… so we can actually, you know, retire early – the whole point of all this!


What the hell is going on?

Some people are extremely worried about their investments right now.  Some are selling their portfolio, some are changing their super allocation, while many others are hesitant to invest until the outlook becomes clearer.

Countless folks are trying to figure out what’s going to happen next.  Here’s just a fraction of the things I’ve seen written in the last few weeks…

“Is the market going to fall again?”

“Maybe I’ll hold off and wait for another dip – the market is going up but things are still bad”

“There’s too much uncertainty to invest right now”

“The market will fall again soon… doesn’t everyone know we’re in a recession?!”

“Investment guru X, or this (hysterical) media article said it’s going to be like the Great Depression”

“Once all the bad news comes out, then the market will really crash!”

“Shouldn’t we wait for a while just to see how this plays out before investing again?”

“Most people will panic when a recession is announced, so that’s when I’ll pounce!

Ugh…even just typing this nonsense is exhausting.  Let’s run through a few of these issues and I’ll give you my thoughts on all this, including some email replies and comments I’ve posted in various places.

First, let’s start with an email from a few weeks ago…


Switching Super to Cash?

“Quick question:  My husband and I are 37.  He thinks it’s a good idea (and he’s already done it) to tinker with his super during covid-19.  He said the shares in his super have gone down, so he has converted it to the cash option.”

“He said when the market/economy crashes he will convert it back to shares.  I told him to leave it in shares and to think of the long term strategy of investment.  Who is correct?”

Haha, wow!  This has ongoing argument written all over it 😉  But seriously, there are so many things wrong with this.  Here are my thoughts…

—  He’s waiting for the market to crash… while at the same time noticing that the sharemarket is ALREADY DOWN, and then decides to cash out.  This is just locking-in losses.  Side note:  the market is up about 27% from the bottom at the time of writing (Friday June 12) – how many predicted that?

—  He clearly has a hunch that things are bad and going to get worse.  Do the thousands of professionals and analysts in the market not already know that?  The market is forward-looking, so the information we have today (the economy is in the shitter and will take a while to recover) is generally baked in to current share prices.

—  Cash has a guaranteed return of about 1% at the moment.  With inflation of 1-2% and some tax, it is a GUARANTEED losing investment from today.

—  He’s probably planning to get back in when things start improving.  But by then, it will be obvious to EVERYONE that things are improving, and the market (because it’s forward looking) will have already moved up to account for the better times ahead.

—  This is money you guys don’t need for another 30 years!  Who cares what happens in the next couple of months?!

—  The ability to sit through short term losses is exactly the reason why shares deliver a higher return than most other assets over the long term.  This is called the equity risk premium.  You earn a premium over other investments for the ‘risk’ of volatility and short term losses.

—  If anything, when shares go down, it’s time to buy more.  Shares have been lower in the last couple of months than they have been for a long time.  And unless the world is literally going to end, they will be much higher 30 years from now.

If not, then we have bigger problems on our hands, because the companies we depend on are struggling, and the economy will still be in the shitter.  Cash will be continuing to decline in value every year thanks to current rates and inflation, so that won’t help either.

—  Nobody has a damn clue exactly how this is going to play out.  Not the government, economists, and certainly not the average person.  So why would we make decision to change a sensible long term investment plan, when we have no clue how the short term will play out?

The only thing that makes sense is choosing the asset class with the strongest prospect for long term returns – that means shares, not cash.

You get the idea by now.  What do you think readers?  I think the wife is 100% right here!


Outsmarting the market

Then there’s variations on the following arguments all over the place in the last month or so…

“It seems likely that the economy is in recession.  This won’t be formally announced until later.  Most humans are dumb and reactionary.  So people will freak out and sell when the news hits that we are in recession”

My thoughts:  This has been in the news for months now, so it’s probably largely priced in.  Do I know for sure?  Of course not.  Nobody does.  It’s just the usual crystal ball bullshit.

We’ll only ever know the answer to questions like this in hindsight, so it’s largely a waste of time thinking about it.  Turns out, a recession was announced on June 3 by Treasurer, Josh Frydenberg.

Let’s check the market reaction.  The week following the recession announcement… the ASX went up 3%.  So much for that theory.  Clearly everybody did not ‘panic and sell’ after it was official.

Why?  Because it was already mind-numbingly evident to everyone that things were pretty messed up already, when all the shops and cafes were closed and Centrelink queues were blowing up.  Or were there actually people who thought the economy was humming along nicely?

In my mind, the dumb and reactionary part is thinking we know what’s going to happen next.  Because this comes with an implied sense of sophistication and assumption that we can solve an unknowable puzzle which is the future.

The problem is, even if you’re right about what events will transpire, you have to also be right about the market’s reaction to those events and how much may or may not be factored into current prices.

If you think you can do this, then good luck to you.  Maybe you’ll be right, but it’s just as likely to be luck than incredible foresight.  I’ve written previously about how impossibly hard it is to time the market, and the psychological hurdles involved means the experience is likely to be a miserable one.


“Yeah but when the media comes out with an endless stream of negative news articles afterwards, that’s when it will affect people’s psyche and things will get ugly”

My thoughts:  Really?  When does the media NOT do this?  The severe negativity bias in the media has been in place for decades now.

When the market is rising, we’re told it’s a bubble about to burst.  When the market is falling, we’re told it’s going to keep getting worse.

No matter what current events are, an endless steam of negative articles is simply business as usual for the media.  Please, for your own sanity, recognise this pattern and learn to move past it.

The mainstream media is worse than useless for financial information (most information?).  Enough already.

In any case, those who make decisions based on the hysteria from click-bait media are not the ones who control large amounts of capital which will actually move the markets.  So this theory is also garbage.


“Well, earnings are about to collapse and the market doesn’t even care.  When earnings are announced, it’ll be much worse than expected and then markets will fall hard”

My thoughts:  This might happen, but again we’ll only know this looking backwards.  Maybe the markets are overvalued.  The problem is, we don’t know how long they’ll stay that way.  The market could zig-zag around its current price for years until earnings catch up.

It doesn’t have to be a big calamitous fall for valuations to become ‘reasonable’ again.  There are many ways it can play out!

Besides, what is a reasonable valuation for stocks when interest rates on bonds for 5, 10, 20, 30 years offer zero real return?  Do valuations have to revert back to a 100 year long term average?  I’m not sure that’s a sensible expectation to have.

Markets in the modern day era are mostly dominated by ‘big money’, not mum and dad investors.  We’re not the ones which move the market.  It’s the institutions, pension funds and professional investment firms dealing with many billions of dollars.

Are these people dumb and reactionary?  Perhaps.  But you’d expect them to be less so than the average person.  Remember, these are the people who see past the headlines, understand what’s going on better than most, and who read enough research reports to make your eyes bleed.

Funny thing, I reckon most people who admit they’re not sure what’s going to happen in the markets (that’s me) didn’t start off that way.  Many of us start out thinking there has to be a way to figure this out…

We follow the news (the same news everybody else does, mind you), think about the future, look at today’s prices, and then make a mental map of what might play out.  And then… it doesn’t happen.  So we try again.  And again.

And after a few goes at this ‘forecasting’ game, we realise we’re really just guessing, and it’s not working.  The market is great at surprising people and making a fool of forecasters.  Don’t be one of them.


Selling the portfolio!

I also received this unfortunate email from a reader:

“I made a mistake (never again I hope!) and was swayed by all of the media buzz and sold 50% of my stocks in the middle of March – basically at the bottom. 

The money was for FIRE and now I don’t know whether to hang on and see if it goes back down before investing, average in slowly over the next few months or years, or just put it all in and accept the 15% hit.”

My reply:  The most important point to consider is what’s already happened.  The mistake was not really the timing of when you sold and the market rising after that.  The actual mistake was that you THOUGHT the market was going to fall further.

That’s the real problem – when people think they can predict what is going to happen.  Not that their particular guess was right or wrong.

If you had gotten this guess right, how would you feel?  Probably pretty clever.  But the decision would still be wrong.  Because it was just a guess, based on information everybody else already knew, that the economy was in the toilet and this virus stuff is scary.

And so if we learn that lesson, it makes future decisions much easier.  How should we proceed if we admit that we really don’t know the future (and nor does anyone else)?

Well, the only logical thing is to simply continue investing regularly over time, as you were probably doing before.  These ups and downs tend to get smoothed out by buying regularly at lots of different prices.

Also, remember your FIRE progress is overwhelmingly driven by saving cash, not investment returns.  And this is your long term money like you said.  So if the market is falling, that’s a chance to buy more at lower prices.

I’m sure you’ve read all this before, so it’s just a matter of believing it yourself and deciding that this guessing-game nonsense doesn’t work.  Also, the ‘loss’ has already taken place.  The gains you’ve missed out on are gone, and we don’t know when the next ‘best’ time to buy will be.

Personally, I’d accept the mistake, throw it back in and keep adding to it with regular savings.  To do otherwise is to start playing the prediction game again, which you’ve seen is usually harmful to your wealth and stressful to play.  But I’m not you, so you have to decide what makes sense for yourself.


The two types of market participants

Those who realise they can’t predict future market moves.  And those who think there has to be a way to figure it out.

This leaves them scrolling the media stories, following the gurus and watch the markets.  They read the tea leaves, get a ‘feel’ for the market, gaze forward into the future and continue making wild-arse guesses.

When a forecast doesn’t play out, people simply move the goalposts… “Yeah okay we dodged that bullet, but when X happens, THEN the market will crash.”  Have you noticed that?

People were predicting all sorts of things early this year that was supposed to cause a recession (like every other year).  But we ended up getting blindsided by a global pandemic instead!

And although these stories sometimes sound valid and well meaning, there’s a problem.  Countless people will line up to tell you why now is not a good time to invest.  But there’ll be no memo when it’s a great time to invest.

Why?  First, they have no idea (see guesswork above), and second, half the time these are the people who don’t invest to begin with!  Finally, I’ve noticed some other interesting behaviour traits…


The two types of investors

The first group is never happy…

The market goes up = “There are no buying opportunities, everything’s overvalued”

The market goes down = “Arrgh, I’m losing money!”

The market goes nowhere = “This sucks, what’s the point of investing?


The second group is always happy…

The market goes up = “Nice – I’m a little bit richer than before”

The market goes down = “Yes, now I can buy even more at lower prices!

The market goes nowhere = “All good, I’ll just sit back and let those dividends roll in”


We get to choose what to focus on.  There’s always a way to see things in either a positive or a negative light.  Which group would you rather be in?  Take your pick!

Of course, due to inevitable volatility, some of our purchases won’t look great in hindsight.  That’s a given.  But we’ll only know that later.

Saving and investing regularly is by far the most reliable way (you could argue, the ONLY way) to make progress towards FIRE.  And if shares fall again, see above: “yes, now I can buy even more at lower prices.” 

That’s the great part of market falls while you’re still on your way to FIRE – your monthly savings will now buy a larger number of shares each time.  When the market bounces back, you’ll be much better off.  Just don’t plan on guessing when that’s gonna be!


Final thoughts

Nearly everyone here is trying to build an investment portfolio to live off someday.  We don’t get there by waiting, guessing or listening to the muppets on TV and financial media.  They have about as much clue what the market will do next as your cat!

For most of us, we’re much better served ignoring all the chatter and continuing on with our plans exactly the same as before.

By the way, I’m not forecasting a permanently rosy future.  We know there’ll be ups and downs.  I’m just tired of all this short term nonsense that is infecting people’s thinking right now.

Let’s just shut up and get on with the business of long term investing, so we can all enjoy that beautiful and inevitable freedom that it creates.

Make a plan and stick to it.  Save relentlessly… invest consistently… retire early.  It’s simple and unsophisticated.  But it works!


24 Replies to “Short-Termism and Market Madness”

  1. The downturn was coming for a long time and was 100% predictable. I converted my Super equities to cash (40%) and fixed income (60%) in November in part and fully Feb. My logic is simple if I know I cannot time the top of the market I’d rather go out early while winning, don’t go back at all, and continue going into riskier assets in a year or two while waiting out the turbulence. Yes I might loose a few dollars but I sleep well not riding the roller coaster. The parallels to the Great Depression and the Spanish Flu are interesting to see. One thing is clear to me – there a way too many who expect a miracle vaccine, miracle market rebound, a miracle consumer, a miracle stock market rally. We are in a historically quite typical deflationary global depression Which will follow by a new long term debt cycle with increasing interest rates (inflation). I have been buying real estate (the undervalued kind) and gold for a while now and started leaving the equities market in 2015. For me the most important thing during these trying times is to make sure not to looses a penny. The do not be invested in stocks has planned out for me. I make a few thousand dollars in rental returns while I reinvest the savings in Gold. Which is up 40% YoY more then covering any potential losses I incur for holding a couple hundred thousand bucks in cash for a year or two. I think understanding wealth cycles and being diversified is key. It is also important to know when it’s time to leave the casino and take the win. The focus should not be on what you might miss out of but what you avoid loosing. Overall I only worked for 5 months in 3.5 years but my investment strategy has panned out well. My Networth is up by 70% and I don’t rely on dividends but renters payments So am in full control.

    Whilst I agree that most people should auto invest and don’t think about it, you have to realise that most people will never FIRE nor become rich. But only being invested in stocks sound a little bit too risky since the days of free flow money are coming to and end. I can easily see a 70% drop in equities before the end of the year. I wonder how all the new experts will react then. How will people react if they are 100% invested in equities then?

    1. Wealth cycles, depression…real estate…continues paying you rent ? How? Stocks get slammed, no body is working, where is the magical rent money…. people will struggle to eat, let alone pay you rent.
      Right now rent is already being hit, if you believe in the wealth cycles ,then just like the USA and parts of Europe, property is due for a massive correction. The high debt levels need correction and the best place to start is… where all the debt is. If the stocks fall, I think the property might follow suit. If not start before the stocks fall. I also have gold, property and stocks. But I think there is higher risk in property at the moment then stock. All the property’s not being rented through air b@b, back on the market, the already over supply this year of 17000 property’s and the million or so foreign owned property’s sitting empty. Record low interest rates with, people with two incomes “still” coming in, that are in HIGH mortgage stress..a lot of dominos any which way you look at it. I will just stick with buying stocks on a regular basis, if that works out bad for me… and everyone else… then I’m sure you will still get your rent. Ohh and gold doesn’t always go up in a deflationary period, once I learnt that I stopped buying it. I initially was buying gold as a hedge against deflation.. guessing you probably are too. Even at the start of the 2008 crash gold pulled back hard as well, Like all the assets. But in normal markets it does go up and down at different levels then the other markets, shares in gold out performed the gold.

    2. Do you happen to work in media financial gladiator? Cause your talking nothing but trash.

      This article was about keeping it simple by regularly investing (via savings) in the share market whilst not trying to predict the next up or down cycle even in the seemingly craziest of times.

      Yet your take on it was that you knew ‘100%’ the market was about to drop gold has gone up 40% YOY, and the sharemarket will drop 70% by the end of the year. While I’m sure this makes sense in your parallel universe, it serves no purpose in this forum or the fire community in general. I wish you and your unicorns all the best in the future however.

    3. Wow, the level of confidence and certainty here is just off the scale (whether valid or otherwise). I don’t know where to start, so perhaps I’ll just leave this for others to decide what to make of it 🙂

  2. Maybe I’ve been on redit too much, but I’ve been seeing more of the opposite—lots of people speculating with calls/puts, airlines, oil companies, etc, trying to get a quick 100%+ profit.

  3. Warren Buffett’s quote that “trouble is always coming” resonates.

    Some people just always have an excuse not to invest. I’ve been investing nearly 20 years, and nearly always a friend or family member tells me why I shouldn’t.. whether it be the tech bubble, 9/11, the GFC or corona virus. Not sure if that’s an evolutionary quirk (fight or flight – most favouring flight), or simple recency bias (we just had a market crash, there must be another one real soon).

    Simple solution was to buy shares (LICs) for all my nieces and nephews when they were young and just let them compound. Over 15 years, they’ve averaged 15% p.a. returns. My sisters have started to wake up now they’ve seen the figures.

        1. Ah thanks John. It almost sounded too good to be true but if you picked WAX, or WIL I think it was known back in the day maybe they are in that ball park. If you judge on shareholder return and gross the numbers up for franking benefits I can kind of see how they might reach near 15% p.a. Also a nice tailwind with the premium to NTA expansion.

          Glad that your family members can see the story of compounding here. A good lesson to invest, but perhaps let them know 15% p.a. for a LIC is usually not the norm :). Wouldn’t want them to rush out and get a personal loan to the max to buy LICs thinking this is how it always works out!

    1. Hi John E, you are a very generous Uncle! I was just curious as to how often you bought shares (LICs) for your nieces and nephews? A one-off purchase for a particular bday etc? Do you think there needs to be a set amount to invest to make it worthwhile or because of the compounding time it doesn’t matter how small the parcel is?
      Thinking I might do something similar for mine instead of buying toys and things that they lose interest in after a week!

      1. Hi Brendan,

        I purchased about 2500 shares of WIL (now WAX) each when the kids were born. The grandparents kicked in another 1000 or so along the way. I set DRP. They all have just under 9000 shares each now. (It’s important they have the same amount each to stop any future arguments ????)

        If I was setting it up now, I’d seriously look at index funds due to the lower fees.

        Would have liked a larger initial amount, but I have 4 nieces and nephews so it adds up ????

        Good luck.

  4. Hey Dave, with the auto-invest feature of pearler, do you still get charged the 9.50 for every auto-invest or just the first one?

    1. Hey Rick. Each purchase (whether automatic or otherwise) will attract brokerage as it’s still a brand new purchase each time being transacted in the open market for you, so fees are charged to Pearler which they have to pass on. Reinvesting dividends is of course different where no brokerage occurs just like normal.

  5. Not a comment on the blog Dave but an observation on some viewpoints.

    So youse sold. Who bought and why? Ever seen those aspects addressed? Thought not.

    1. Haha thanks Chris, I’ve heard of this before, but forgot about it actually 🙂 Everything screams “do something” (implying sell to stop the pain) when doing nothing (or continuing to invest) actually makes more sense over time.

  6. Another great article mate, very down to earth and so spot on.
    I fall strongly into the Second happy group !

    1. Excellent, that’s good to hear Robert! There isn’t many members in this happy little group of ours 😉

  7. I am in the second happy group too. Thanks to all the amazing FIRE podcasts and blogs such as yours, I’m staying the course and not worrying at all about what the market is doing.

  8. Thank you to all the above and to you Dave, this site is a blessing for the investor be old (liker me 54) or young. The above issue above has been covered well and i will share my little bit, At the beginning of the year 2020, i was updating my spreadsheet with my net wealth figures like i do at various times of the year and have since we started in 2002. Our portfolio of stocks (made up of good quality blue chip, large and smaller companies, managed funds, LICs, ETFs, International share portfolio, mining stocks etc, ie: companies that when purchased years ago will be around in 30 years (well one would expect) plus Property and cash. Diversification helps smooth the balance and feelings, I felt comfortable with my selection and diversification. As they say only invest what you dont need now or for tomorrow, cycles take time and we have to invest long enough to see them out/through. I am long term and feel confident i dont need to touch the funds as i like the income produced along with the DRP for a large majority. The total at the time was 1.6 million. A few months later the pandemic kicked in and at the eye of the storm we invested a little more. Can i sleep at night. yep!!!!. because i am no expert as to where the market will go, but i have faith in the human race and if i look at the graphs showing the share market with all the world disasters since 1900, the graph has a blip here and there but its going in the right direction “up” As humans we get back on track after bumps in the road of life and i am sure things will return to normal once again. We all know when investing (hoping everyone did some study prior to jumping in) that it will be a bumpy ride and we will have crashes here and there, If you didnt do the study, shame on you…. start reading/learning. It will work out, history shows us that.. and if you want to read a good book about investing check out this one i have just finished.

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