This story is sponsored by Mindful Money, a Berkeley wealth management company that is committed to a behavioral and mindful approach towards financial well-being. It was written by the company’s founder and president, Jonathan DeYoe.
Every morning I follow the same routine: after mediation, exercise and gardening, I read the financial news online. This is a habit I have maintained for over two decades. The mediums have changed, and there are far more ads posing as news than ever, but the basic content of actual articles is incredibly consistent.
The top headlines on Oct. 17 were:
- “In a world of paltry .06% interest rates, these income stocks yield up to 10.2%,” and
- “US Oil Stocks are seriously undervalued right now”
The first headline sets up the problem (it is hard to get a good interest rate in this environment) and then provides a solution (a small set of income stocks that offer very high — some might say too high — yields). The second headline states directly the opportunity that exists in the U.S. Oil patch.
For our purposes, I want you to see that both headlines basically say the same thing, “buy now.” Sometimes the headline is “sell now.” Other times, there is a compound headline — “sell this; buy that… now.”
Every moment of every day you can log into the financial press and find a headline that suggests that some particular investment is mispriced and poised (now more than before) for a surge. “Buy now” suggests the surge will be positive. “Sell now” suggests the surge will be negative.
Somewhere on the order of 70% of all financial press is dedicated to explaining how a particular investment is mispriced and predicting that the mispricing is an opportunity (or a threat) that recommends an investing action — to buy or sell now.
And then there are the rabbit holes. On this day, at least one-quarter of headlines had something to do with cryptocurrency. Earlier this year, there were similar bubbles in headlines about SPACs, NFTs, and exploiting subreddit for day-trading. Last year, the headline bubbles were all about steering you around COVID-19 (and the scale tipped up to over 80%). Nothing in any of these worlds requires anything close to a quarter, much less 80%, of our attention.
Free your mind
The single most liberating thing I know about investing is that the economy cannot be forecast, and the market cannot be timed. A close second is that a diversified portfolio will automatically include some companies that embrace whatever new thing is being heavily discussed in the various headline bubble periods. If a technology (like blockchain) would be beneficial to a company’s bottom line, they will line up to employ that new technology on your behalf.
Or, simply put, you can (and should) ignore the financial press when it comes to managing your portfolio.
So, the economy, the markets and future relative performance of investments can’t consistently be predicted, much less timed. And that’s all right, because compared to the way your assets are divided (owning a broadly diversified basket of great companies vs. lending to the same companies) — and to the overriding issue of behavior — those variables are almost irrelevant. In practice, the only way to capture the full permanent return of equities is to sit patiently through their full temporary volatility.
All the research tells us that you cannot predict the direction of markets and economies or the future relative performance of specific investments. When someone starts nattering about what you need to do “right now” either to take advantage of some upside event or to steer clear of some downside event, they are predicting. You should smile and walk away.
In fact, knowing that the vast majority of digital ink spilled in the financial world is either predicting (something that we know it can’t do successfully) or is a probable rabbit hole, you may be better off ignoring it all together. Instead, focus your reading on the sports, arts, science, lifestyle, and travel sections of your favorite news source.
Learn to live with uncertainty
Uncertainty — in the markets and indeed the world — is the only certainty. Volatility in markets and our portfolios is a given. Economic shocks are a given. We don’t move from periods of uncertainty to periods of certainty; rather we move from one uncertainty to the next. Our challenge is always to practice rationality under uncertainty. When we know that attempts to predict fail more often than they succeed and we know that the more time we spend attempting to predict the higher the likelihood we will fail (in other words we don’t get better with practice), then the only rational choice is to stop attempting to predict.
I am perfectly willing to acknowledge that there are issues — inequality, a pandemic, national debt, tapering, inflation, supply-chain challenges, etc. I accept the logic behind arguments that these things are bad and will have an economic effect of some kind at some point. But — and this is the critical thing to understand — we don’t know when they will become an issue, we don’t know in what way they will become an issue, and we cannot predict how people, governments or capital markets will respond when they do become an issue.
Even agreeing on the issues, we cannot translate that agreement into intelligent portfolio decisions because no one can gain an advantage over the equity market by going in and out of it because of current events or perceived threats. Our best course of action — the only option for serious investors — is patiently holding the portfolio which seems best suited to your long-term goals.
Today’s headlines have nothing whatsoever to do with our many-decade, multi-generational, goal-focused, and planning-driven portfolios. Any response to a headline (or a market fear) is an attempt at prediction.
Stop Predicting. Start Planning. Stay Mindful.
This story was written and paid for by Jonathan K. DeYoe, founder and president Mindful Money, a Registered Investment Advisor. He is passionate about personal financial planning, financial literacy and helping clients achieve better outcomes through mindfulness. He is the author of “Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend.”
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Mindful Money and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Mindful Money unless a client service agreement is in place. Mindful Money is a service mark of DeYoe Wealth Management, Inc. a Registered Investment Adviser.