Lunacy. I’ve been watching various headlines for the direct purpose of pointing out the sheer craziness of headline investing. Here are five headlines from the past couple of weeks.
“Stocks finish lower. Global growth worries return. Here’s what happened in markets today.”
“The Dow Loses 33 Points Because the Market Is Getting Pulled in Different Directions”
“Stock market gains after Fed removes ‘patient’ from policy statement.”
“The Dow Jones Industrial Average just hit a new high, it’s time to talk about a recession.”
OR MY PERSONAL FAVORITE: “The Dow is Falling Because the Jobs Report Might Have Been Too Good”
Surely, these writers can’t be serious. What, exactly, is anyone supposed to do with this information? What impact could any of these headlines have on a 30-year retirement portfolio?
Can you recall a single headline from 2017? How about 2012? How about 2004? (Mind you, 2004 is only half of an average retirement ago.) Let’s never forget, these sources are in the business of selling advertising - not providing anything worth actually knowing.
The only thing that really happened on any one of these particular days is there were more buyers than sellers or more sellers than buyers. There is no alternative outcome. They are trying to pin a reason the market did something on a market they routinely refer to as unreasonable.
The total market cap of the S&P 500 is somewhere around $24,000,000,000,000. Yes, that number is $24 Trillion. A number that is pretty much incomprehensible. And that is JUST the S&P 500 market cap which is only the 500 largest domestically traded companies - no small caps, and no international.
To say that the market did ____ because of ____ on a daily basis seems so far out in left field I can’t even begin to comprehend it. The fact that someone is willing to sign their name to a singular reason that $24 Trillion of invested capital went up or down seems just short of the nuthouse to me.
The purpose of investing is the accumulation of business assets that do a combination of two things: increase the value of the ongoing business concern via a variety of means and/or pay cash to existing owners in the form of dividends.
The purpose of the management team in place of any specific company is to increase that value further for existing business owners (shareholders). They monitor the business climate, interest rates, tariff situation, supply chains, overall supply and demand of their products, innovate on future products, continue research and development, maintain quality supplier and distributor relationships and plenty more.
Each of those activities will take into account the geopolitical and economic environments with the explicit goal of continuing as a profitable business and perhaps further increasing those profits. And regardless of what you hear on TV, they must do their jobs quite well on the whole. Otherwise, the market will figure it out and they will go out of business at some point. It really is that simple.
I want to remind you of these simple truths because it’s so easy to get caught up in the noise. People sound like they know what they are talking about even if they have no idea. (Even if they actually think they do know.) And if they can’t tell you what’s happened in the last 24 hours, what makes you think they know what’s coming in the next 24 hours or six months, or year? Heck, Harry Dent is projecting a depression in 2073. What?! Truly wild stuff.
Keep all of this in mind when you hear someone on TV or even your neighbor saying, “This is what’s happening and why.” at any given moment. There is no way to know why $24 Trillion+ in capital fluctuates in value on any given day, week or even year. No way.
Thanks for reading!
Any opinions are those of Ashby Daniels and not necessarily those of Raymond James.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results.