storytelling

Is a Drop a Loss?

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We humans use stories about events great and small to help understand the world. One of the common stories about the stock market contributes to a great misunderstanding, however.

A market decline from some higher point in the past is often spoken of as a loss. Yet whenever the market is trading at an all-time high, every past downturn has been fully recovered. One might ask where the loss actually is.

To illustrate, the decade of the 1990’s was a good one for the broad stock market, as measured by the S&P 500 Stock Index. It more than tripled, rising from 353 points to 1,469. Yet of the 2,527 trading days of the decade, 1,171 saw a decline—a drop—in the market index.1

Those down days represent a cumulative 729% in “losses.”1

In a decade when the market tripled, how does it make sense to speak of losses during the interim? Particularly losses equal to many times the beginning level?

The market is volatile. Values fluctuate. It goes up and down. But if you have long term goals, it might pay to focus on long term results, not temporary downturns. If you invest next week’s grocery money in the stock market, then yes, a temporary downturn will result in a loss when you sell out in order to buy food. Otherwise, we would say a drop is not a loss.

Note: one should never invest next week’s grocery money in the stock market.

Our business is striving for long term results for people who share our time horizon and philosophy of investing. We talk about it every way we know how, in many venues, to reinforce effective investing attitudes and to forewarn those who lack them.

Clients, if you would like to talk about this or anything else, please email us or call.

1Standard & Poor’s 500 Index, S&P Dow Jones Indices. Retrieved September 18th, 2018.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk including loss of principal.

 

What’s Your Story?

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Thinker Morgan Housel wrote recently about the power of narrative in “The Greatest Story Ever Told.” The essay focused on the narratives that affect the whole economy, the big-picture themes. The future of the country didn’t change much from 2007 to 2009, but employment, wealth, and the markets all got slammed. What caused it? The central narrative, how we understood our economy, changed dramatically from the peak of the boom to the bottom of the bust.

Investment manias have a story at their core. They may come true or not, but while the story holds sway, real values are driven by the story. Housel summarized it this way: “this is not a story about something happening; something is happening because there’s a story.”

Stories are how we organize and understand the world and our place in it. “Stories create their own kind of truth,” as Housel wrote. We believe the same idea shapes the lives of individuals just as certainly as it shapes economic and societal trends.

At 228 Main, we have stories. About people who save diligently and achieve financial independence. About folks who invest with increasing confidence and less worry over the years. About investors who learn to live with volatility, and hold on through the downturns. (These are stories, not promises or guarantees—you long-time clients know your own realities.)

I would not be able to work with you as effectively without those stories—and more importantly, the narratives of my own life.

I have a story about a vibrant business in the face of steep personal challenges. I have a story about working to age 92. I have a story about new ways of doing business in the 21st century.

These stories have enabled me to thrive while dealing with major issues, live healthier than I have for decades, communicate more effectively with you than ever before, and make plans for the decades ahead while some of my contemporaries coast toward retirement.

It feels to me as if the stories I have crafted in turn have shaped my life. I am not done creating stories; life goes on and things change. We do not know the future. But if we take control of our stories, we may be able to influence our futures. No guarantees.

How about you? What’s your story? Are there aspects of your narrative that we could help you with? Clients, please email us or call if you would like a longer discussion.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.