A long time ago, a toddler posed me the above question. Surprised, I said “What does?”
She replied, “The world!”
The innocent quest of a three-year-old to observe and understand the world as it is contains a vital lesson for investors. The corresponding question for investors—one that deals with the most basic aspect of the economic and business world and the investment markets—is “Ever notice that it goes up-down, up-down, up-down?”
Cycles and volatility are every bit as central to the investing world as night and day are to the physical world. When the sun sets, we know better than to panic about whether it will ever rise again. When the markets turn downward, it is equally fruitless to worry that they are going to stay down forever.
It is important to have the wisdom to recognize that markets don’t go up forever, either. Investors are lured into bubbles by the notion that the good times are here to stay. How many people did you hear saying that “you can’t lose money in real estate” in 2007 or that “you can’t lose money in tech stocks” in 2000? They might as well have been saying that the sun will never set.
We know that the market goes up-down, up-down, up-down. While markets may not be as reliable as the sun, we believe that over the long run we can see more “up” than “down.” Part of this is knowing enough to avoid stampedes when everyone else is convinced that a market can only go up-up-up or down-down-down.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal.