Let me know if any of these narratives sound familiar to you:
2013 Analyst: "We are deeply concerned about the sharply rising 10-Year Treasury Yield as a headwind for stocks. The end of quantitative easing and the Federal Reserve's unprecedented monetary policies may forestall further gains in equities." Total return of the SPDR S&P 500 ETF (NYSEARCA:SPY): +32.31%
2014 Analyst: "A sharp drop in virtually all commodity prices may be signaling a contraction in the global economy and warrant reducing exposure to risk assets. Furthermore, the strongest performing asset class is the 30-year Treasury bond, which is a virtual assurance of the coming apocalypse." SPY total return: +13.46%
2015 Analyst: "We are worried that market breadth is deteriorating so rapidly. The "FANG" stocks are the only bright spots in an otherwise bleak investing landscape. In fact, the average publicly traded company is now firmly in bear market territory." SPY total return: +1.23%
2016 Analyst: "We are troubled that utilities and consumer staples stocks are the market leaders and momentum is waning in growth sectors. This bulking up in defensive assets may lead to…." SPY total return: TBD
Should be interesting to see how that last one ends.
Those aren't real headlines, but made-up approximations based on very real themes that assaulted investors over the last four years. I could go further back in time to sensationalize the concerns of market participants in the cross hairs of any given moment, but I think the point has been made.
The stock market never looks perfect. There is always something to worry about. That is why they call it climbing the "wall of worry".
If you are waiting on a specific point of certainty in order to invest, you are going to be the last guy or girl holding the bag before the wheels really come off. There are always going to be wars, elections, corruption, debt cycles, stock upheaval, commodity insecurity, and a whole lot of people who are bigger, faster, and smarter than you are in the market. In addition, there are shifting cross currents that offer little in the way of predictable patterns.
For example, right now the stock market is entirely fixated (read: correlated) with the day to day fluctuation in oil prices. Stocks want a rebound in oil to boost the sickly energy sector, prop up the credit markets, and generally re-initiate a sense of inflation or consumption in the global economy.
Years ago, oil prices were a thorn in the side of stocks. If you saw a 5% jump in overnight crude oil futures, you could pretty much count on a big drop in the stock market. Funny how perceptions change over time and "rules of thumb" seem to disintegrate under differing global circumstances.
This all goes to prove a point. There is no certainty when it comes to investing. There is only process and discipline to guide you through the difficult periods. Much of that discipline may involve tuning out the noise of the media that is constantly focusing on short-term themes or sensationalist headlines. They aren't intentionally trying to hurt or persuade investors down any particular path. They are just motivated by different forces than we are.
Is the stock market rigged? Maybe. Probably even. But it's the best system we have and it's continued to multiply the wealth of methodical investors for many generations.
There are going to be periods of turbulence that test the resolve of even the most ardent buy and holder or battle-hardened trader. However, it's imperative that you lean even further on your specific philosophy during those tumultuous days to achieve a successful outcome.
For me that means taking a balanced approach that pairs multiple asset classes together to smooth out volatility. This includes a stringent focus on security selection and structural asset class combinations to ensure risks are matched appropriately. In addition, I have the flexibility to shift the portfolio to fresh themes in order to take advantage of new opportunities or pair back on areas showing undo stress.
I know that many investors have been chasing their tails with individual stocks or sectors and trying to divine the next big trend. However, in my opinion this type of environment is more conducive to avoiding those hit-or-miss propositions by committing to broad-based ETFs showing lower volatility or relative strength versus their peers.
Put it this way - your ego wants you to own Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) so you can brag about it on the golf course or over the water cooler at work. Of course, that probably means you own Twitter (NYSE:TWTR) and Yahoo (YHOO) as well (we'll just keep those quiet).
On the flip side, your spouse wants you to own a nice slug of diversified bonds alongside some conservative stocks. It's not sexy, but it is a big stress reducer overall and will likely keep you from making rash decisions at inopportune times.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.