Markets – So You Think You Are Smarter Than the Rest of the World?
Every night on the news, they speak about “the stock market.” Many times, they don’t even include the “stock” descriptor and just go with “the market.”
Have you ever thought about what “the market” is?
A market is a place where people come together to exchange goods or services. In the case of the stock market, the exchange involves dollars and fractional ownership of businesses. Each moment, of each day, hundreds of millions—if not billions—of people worldwide are evaluating the prices of various securities and deciding whether to buy, sell or hold. At any point in time, the last transaction establishes the price of a security.
In years gone by, it was VERY difficult to get accurate and timely information. However, even in those times, it was shown that the market was efficient—i.e., it had all of the available information “priced in”—and, therefore, the price was accurate.
So here is the big question: do you believe that you have some unique access to information, or some unique insight, that allows you to better ascertain the pricing of a specific security than the other hundred million plus individuals who are performing the exact same exercise (deciding to buy, sell or hold)? If you believe this, I would contend that you are either (i) cocky beyond all belief (I would actually like to be stronger in my statement, but I am refraining so as to avoid making an enemy!) or (ii) an insider who really does have unique insights/information.
Here’s the deal: I don’t believe that cockiness is a recipe for investment success (and the facts prove this out), AND if you are an insider, you are FORBIDDEN from using this information to trade. Where does that leave us?
In my opinion, it leaves us with—and leads us to the conclusion that—you want to invest in broad “asset classes” that are well defined and well understood. You want to invest in asset classes that have persistent (i.e., able to stand the test of time) and pervasive (i.e., able to stand the test of geography) performance characteristics. When you build an investment philosophy around this idea, you end up with a portfolio that is well defined (historically) in terms of returns and volatility. If you believe the past is the best predictor of the future, you are then well positioned to ascertain the likely behavior of your portfolio.
Finally, there is an AMAZING benefit of taking this approach: you get to ignore the talking heads on TV and all of their babbling about the market.
BTW, here is a little “secret” (actually it is NOT so secret): almost all of the talking heads fully understand what I have just shared, and they accept that it is well known and understood. BUT it’s pretty boring stuff, and they prefer to create drama that folks are drawn to watch.
- Are you interested in finding out how to ignore the market while investing very wisely in the market?
If so, could you use some guidance and support in taking this large and important step?
Feel free to send us an email or give us a call. We’d love to have the opportunity to hear about your situation and your thoughts on this post.
Enjoy the read and remember, it’s NOT about the money. It’s about how the money supports your goals!
At F5 Financial Planning we focus on helping individuals and families find balance between faith, friends and family, fitness and finance. We make sure that they have the financial freedom to enjoy those things in life that are important to them. And while we believe the left-brain facts and data are critical; we work with our clients to get them in the right state of mind to focus on the goals they want to achieve.
Some other posts that you might like:
- Should You Pay Off Your Mortgage?
- How Are DFA Funds Different than Index Funds?
- How Families Can Calculate Retirement Income Wants Versus Needs
- What Your Grandma Taught You About Investing
- Making Sure You Can Collect a Paycheck in Retirement
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F5 Financial Planning provides fee only financial planning services to Naperville, Plainfield, Bolingbrook, Aurora, Oswego, Geneva, St. Charles, Wheaton, Glen Ellyn, Lisle, Chicago and the surrounding communities. Curt Stowers is a fee only financial planner. He has passed the CFP® examination. Contact or visit Curt at his Naperville location.
We’d love to have the opportunity to hear about your situation. Send us an e-mail or give us a call to find out more about next steps
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