One of the biggest obstacles to becoming wealthy is seeing the image of a black dot in the above picture. Although it only represents a small percentage of the graphic, if that is what you see first, it reveals an important insight into how you view the world.  As Rabbi Lord Jonathan Sacks explains in Celebrating Life, “news is like the black spot on white paper…. Bad news is news precisely because so much of life is good.” His important message teaches people to appreciate all the good in the world, but there’s an investment lesson here, too.

Warren Buffett explains, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

The problem with the news is the news

Trying to get wealthy while the news constantly blurts out the horrors du jour makes investors feel naïve. “How can I invest for the long-term,” they worry, “when I just read an article about recession/war/global warming/corona/etc.?” It’s natural to get drawn to scary stories since human beings are predisposed to notice danger. However, people who make money in the stock market learn to control their animal instinct, and look at the larger picture.  In our case, realizing that most of the image is white, and not fixating on the black spot. Pretty much everything is good these days: you’re not hungry, you have an internet connection, you can come and go as you please in a variety of different types of vehicles, and you’re safe and warm. Getting sucked into the news cycle makes it more difficult to appreciate how great the world is.

What to do when the market crashes

Although we can blame the news for encouraging irrational investor behavior, ultimately people make their own choices. If you want to be a successful long-term investor, you need to prepare yourself for the many inevitable market dips and crashes… since the nature of the market is volatility. Consider this: Over the past 40 years, about three quarters of the years showed positive results in the S&P 500; however, some of the losing 25% of the years were often pretty painful, sometimes dropping nearly in half. If you can’t handle that kind of volatility, then maybe the market isn’t for you. Past performance is not a guarantee of future returns. 

You don’t have to buy stocks to be an investor

Many people find the swings in their portfolios are too disconcerting. If you fit into that crowd, ask your advisor what you can do to lower the risk of your portfolio. There are other investments which may be appropriate for a more conservative investor other than putting cash in your mattress. If you’d like a review of your accounts, contact us.

Published December 29, 2022.

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