A couple of questions for you:
When is the stock market going to recover?
How high will interest rates go?
When will inflation recede to more normal levels?
There is a lot of uncertainty in our world right now. Beyond the questions posed above, there are uncertainties about China, the war in Ukraine, and the upcoming mid-term elections. It seems as though the future is more uncertain now than it has been in recent years.
But that’s just not true.
The future is always uncertain. Why? Because it’s always unknowable.
In truth, the uncertainties we cite today pale in comparison to the uncertainties this country has faced in the past. In the early 1860s, our forebearers were wondering if America would survive as a nation, or if it would tear itself apart in the American Civil War. In the 1930s, farming families in particular wondered where their next meal would come from while dust storms choked the land. And in the 1970s, there were legitimate fears a nuclear attack would annihilate us all.
And that’s to say nothing of World War I, World War II, and a dozen other major events in the life of the United States.
The future is always uncertain.
What changes is not uncertainty but our perception of uncertainty.
Investors’ perception of uncertainty yo-yos from care-free to cagey. At some points – like in 1929, or 1999, or 2021 – investors disregard future uncertainty. They form a “what could possibly go wrong?” attitude. They don’t have a care in the world. All the money they are making in the market blinds them to potential downsides. Those care-free attitudes inevitably catch up with investors.
Eventually, the mood changes.
The storm clouds on the horizon, which were always there, appear more menacing. Investors become cautious, on high alert. Any little piece of negative news sets them off. They form a Chicken Little “the sky is falling!” attitude.
And then the market begins to drop. Investors obsess about all the money they have lost, and the potential to lose more seems inescapable. Those cagey attitudes inevitably catch up with investors.
Eventually, the mood changes.
At the darkest point, the green shoots of recovery start to form in the deepest cracks. And the cycle begins anew.
Our job as stock market investors is to ride out these cycles. Notice, it’s not to jump in and out of them. That’s an impossible task. That requires an ability to predict the future, and the future is unknowable.
They say being invested in the stock market is like riding a roller coaster. I agree. But I would add a caveat: Being invested in the stock market is like riding a roller coaster – in the dark.
We know there will be twists, turns, ups, and downs. We just can’t see them in advance.
The best investors don’t worry about predicting those gyrations. They just hang on.