Don't Believe Everything On The Internet

Snakes eat sharks!

Yes, that is a thing on the internet.

Earlier this week my kindergartener Maggie finished her first school report. Her assignment was to pick an animal and use the internet to obtain interesting facts about that animal. After Googling snakes, somewhere she saw a photoshopped image of a snake eating a shark.

I let her turn this in simply because I knew her teacher would die laughing, as did I when she showed it to me.

While the first statement is based on a solid analysis, the 2nd is not true. At least I think...

A Financial Example

About 2 years ago, a MarketWatch article was published declaring an imminent stock market crash (BEWARE). The author cites low economic growth, stock bubble talk, and the GOP as evidence the big one is coming. He goes on to quote a prominent money manager that a crash worse than 2000 and 2008 is coming "around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse."

That was May of 2015. Here's what the stock market actually did in 2016. Note the big gain the last two months of the year, AFTER the election. By the way, the stock market continues to grow in 2017 based on the assumption that the majority of Trump's policy goals will benefit the economy following implementation.

So where is that big crash "around or soon after" the election?

If you took the information in the article seriously, you would have missed out on some serious gains in 2016. To put it in perspective, forfeiting a 13.58% gain on a $500,000 portfolio represents a portfolio $67,900 lighter than it could have been.

Taking the longer view, the author will eventually get his bear market crash. But that's the thing with perennial stock market crash predictors; they're eventually correct. But that doesn't mean you should react to what you read just because it struck a chord with you. You're not smart enough to predict market highs and lows (no one is). The stock market is not a reliable system that behaves according to a defined set of rules, like math or physics.

A Simple Message

Modern Portfolio Theory suggests that the stock market can be thought of as a massive information processing machine. All relevant information is reflected in the current price of stocks. Traders and their super algorithms react insanely fast to new information, and you can't outsmart the collective wisdom of millions of investors by moving in and out of asset classes with market timing strategies.

It's ok to follow financial opinions, but recognize the ones that deviate from sticking to your specific long-term strategy are nothing more than entertainment. So don't believe anything you read online that counters the historically rewarding tactics of patience, discipline, and global diversification.

#investorbehavior