January 9, 2023
Forefront‘s Monday Market Update
My son is an eternal optimist, and it is a trait of his that I wish I could bottle up and pass out to the world. It isn’t that he shields himself from the obvious; he puts more weight on the good in any situation than the bad. The problem with optimism is that it often requires believing. Believing in the unknown, unspecified future, and that seems naïve. But is it?
Pessimists Sound Smart
January is one of my favorite times in the market because now we get the talking heads on TV to give us their predictions for what will happen in the market this year.
Spoiler alert: they are almost always wrong.
CNBC, Fox Business, et al. have a job to do, and that job is to sell advertising space. They need eyes tuned in to get top dollar for that ad space. You are the product of these networks, and the faster we remember, the faster we can make investing decisions without caring what Jim Cramer says.
They will trot out various “experts,” all of whom will tell you that record inflation and an overly aggressive Federal Reserve will plunge us into a recession. While this might be true, it isn’t some new revelation that we are all hearing, but we eat it up because, man, do those people sound smart!
Learning from WW2 Fighter Jets
During WW2, famous statistician Abraham Wald reviewed data that found the US Army’s analysis of where to reinforce fighter jets was overlooking critical information. They were only looking at the planes that made it back and were going to reinforce the areas where they saw the most bullet holes. Wald disagreed and pointed out that they only looked at the planes that made it back.
Where the damage was on the aircraft that made it home wasn’t critical, as they still made it home. He suggested reinforcing the other areas because it was clear that when those areas were hit, the planes went down.
Focusing too much on the wrong thing can guide us to the wrong solution, even though it might look intuitive and an intelligent choice.
I don’t know what will happen in 2023 in the market, so I tell all my clients that “the plan is the product, not the portfolio.”
Over the past 100 years, only 5% of trading days were at an all-time high. Looking at it differently, 95% of the time, we as investors are in a constant state of drawdown from all-time highs.
Data shows us that the market is up roughly 55% of the time on a day-to-day basis, which means down days should come as no surprise to anyone.
For years, one of the individual investors’ most significant advantages was holding on to their long-term time horizon. Professionals like myself used to feel a need to trade accounts so they could “work for their fee,” which is detrimental to your long-term success.
We still see it today with many advisors and companies that make unnecessary trades because they hang their value on trying to predict where the market is going rather than on the plan they have put in place that allows their clients to stay invested and maintain their long-term time horizon.
Pessimists sound smart; optimists make money
There isn’t much more to say than that. Pessimism sounds smart, but the optimists are the ones who make money long-term investing in the stock market.
So how does this impact all of you?
Don’t let pessimism drive your decision-making, especiallypessimism brought on by talking heads on TV.
Think differently. Approach problems from differentviewpoints as we did in WW2.
Stock market calendar this week:
|MONDAY, JAN. 9
|NY Fed 1-year inflation expectations
|NY Fed 5-year inflation expectations
|Atlanta Fed President Raphael Bostic speaks
|TUESDAY, JAN. 10
|NFIB small-business index
|Fed Chair Jerome Powell speaks in Sweden
|Wholesale inventories (revision)
|WEDNESDAY, JAN. 11
|THURSDAY, JAN. 12
|Philadelphia Fed President Patrick Harker speaks
|St. Louis Fed President James Bullard speaks
|Consumer price index
|Core CPI (year-over-year)
|CPI excluding shelter (3-month SAAR)
|Initial jobless claims
|Continuing jobless claims
|FRIDAY, JAN. 13
|Import price index
|UMich consumer sentiment index (early)
|UMich 1-year consumer inflation expectations
|UMich 5-year consumer inflation expectations