Our AI writing assistant, WriteUp, can assist you in easily writing any text. Click here to experience its capabilities.

This is Why You Stay the Course

View Original View Raw

Summary

This article discusses the importance of staying the course in investing, even when it doesn't feel right in the short-term. It looks at historical data to show that sometimes big losses in the stock market are followed by big gains. The article also mentions the difficulty of making predictions about the stock market in the short-term and how Wall Street strategists revise their forecasts when stocks start to rise. In the end, the article emphasizes the importance of having an investment plan that you can stick with through a wide range of market and economic environments and doing less or nothing at all as the right way forward for most investors.

Q&As

What is the historical trend of the S&P 500 following a down year?
The historical trend of the S&P 500 following a down year is either a huge rally or further soul-crushing losses.

What do Wall Street strategists typically do when the stock market is falling or rising?
Wall Street strategists typically become pessimistic when stocks are falling and optimistic when stocks are rising.

How can investors stay the course despite the temptation to make changes to their portfolio?
Investors can stay the course by having an investment plan that they can stick with through a wide range of market and economic environments, thinking and acting for the long term even when it doesn’t feel right in the short-term, preparing rather than predicting, and doing nothing when that’s what their plan calls for.

What is the lesson of an old parable about a locksmith?
The lesson of the old parable about the locksmith is that effort is often inversely related to results in the market, and that doing more is often damaging to investment performance.

What is the advice to investors in the article?
The advice to investors in the article is to stay the course, do less or nothing at all, and prepare rather than predict.

AI Comments

👍 This article provides an excellent lesson in the power of staying the course and emphasizes the importance of having an investment plan that you can stick with through different market and economic environments.

👎 The article fails to mention other ways that investors can protect themselves from losses in the stock market, such as diversification and hedging strategies.

AI Discussion

Me: It talks about staying the course in investing, regardless of the market performance in the prior year. It basically explains that even though the stock market had one of its worst years last year, it doesn't necessarily mean that it will continue to decline this year. It could go up or down, but it's important to stay the course as an investor.

Friend: That's really interesting. It's so hard to predict what the stock market will do, so this article is a reminder to stay focused on our long-term goals instead of trying to time the market.

Me: Absolutely. It also points out the dangers of relying on predictions from Wall Street strategists. Even though they had a number of predictions for the stock market at the beginning of the year, the stock market has already surpassed most of them. So, it's important to remember that when it comes to investing, it's better to prepare than to predict.

Action items

Create an investment plan that you can stick to through a wide range of market and economic environments.
Prepare for the future rather than trying to predict it.
Resist the temptation to make changes to your portfolio, as doing more is often damaging to your investment performance.

Technical terms

Recency: The tendency to remember recent events more than those that happened in the past.
Loss Aversion: The tendency to prefer avoiding losses to acquiring gains.
Daniel Kahneman: A Nobel Prize-winning psychologist who developed the concept of loss aversion.
S&P 500: An index of 500 of the largest publicly traded companies in the United States.
Nasdaq 100: An index of the 100 largest non-financial companies listed on the Nasdaq stock exchange.
Inflation: A sustained increase in the general price level of goods and services in an economy over a period of time.
Fed: The Federal Reserve, the central banking system of the United States.
Wall Street: A street in lower Manhattan, New York City, where the New York Stock Exchange and other financial institutions are located.
Strategists: Professionals who analyze financial markets and make predictions about future performance.
Soul-Crushing: Extremely depressing or disheartening.
Feast or Famine: A situation in which there is either an abundance or a scarcity of something.
Left Field: An unexpected or unpredictable event or situation.
Staying the Course: Maintaining a consistent course of action, despite obstacles or difficulties.
Contrarians: People who go against the grain and hold opinions that are contrary to the majority.