There is always a reason not to invest in stocks. Over the years there have been countless reasons that have kept investors out of the market. The graph below was posted on Twitter back in August by @danielcrosby. I pulled that chart up again last week after the election and reminded myself how many reasons over the years there have been to sit on the sidelines. The sad truth is everything on the chart had well-reasoned arguments for why investors should have avoided the stock market. But the market was actually up 100 times more than inflation over the time period in the chart.
It is so difficult to avoid getting caught up in the madness because the issues surrounding these problems are real. The story is always more persuasive than the truth. Try playing a little game the next time you are at a cocktail and the stock market comes up. There is usually someone around that has a story for a certain stock or how the economy will impact global returns. Everyone standing around listening is captivated because they love the story. Eventually someone will ask you how you go about investing. My usual response is something like, “Well, I just buy a bunch of stocks that are going up and hold them until they stop going up.” It is amazing how quickly everyone needs to go to the bar for a refill after hearing my “story.”
But that is one of the best ways to make money in the market over the long term! Find an edge and exploit that edge as best you can. Keep the process simple so that it is repeatable. The more moving parts you have the more things you have that can break. The more you focus on stories rather than a repeatable, proven process the more likely you will be to fall into the trap that plagues most investors.
Telling a story is great for sales. You aren’t going to bring in many new accounts with the cocktail party speech I suggested above. So go ahead a put a little sizzle on the steak in order to sell your process. But when the rubber meets the road and it is time get down to the business of managing accounts don’t fool yourself. There is elegance in simplicity. Follow your process and don’t get caught up trying to make everyone think you are a really smart person. There are always reasons to keep you out of the markets, but history shows that basing your investment decisions on the news story du jour isn’t the way to generate good returns over time.