You find a million bucks buried in your backyard on New Year’s Eve. But you’re lucky – you don’t really need it. So you think “I’ll invest it”. And you do, on January 1st, 2025 – all in stocks. From that day until today, you don’t check your account, but you do check the news periodically. Here’s what you’ve seen: And just yesterday: After all that, how do you think that million is doing? Can’t be good. Probably horrible. 2008 all over again. You’re nervous. You’ve been nervous. Should you do something now? You bet everyone else already has. Will …
Frequently “Oaked” Questions: The Tariff Drop
You Asked, So We’ll Answer FOQ: This tariff drop – is it different this time? Short: Nope Long: The market drops for many different reasons. But most importantly, it ALWAYS drops: Nothing new here. The takeaway is that after every single big drop, the market has hit a new high. Every single time. So when you say “It’s different this time”, know that it’s not the reason that matters. It’s the outcome. And the outcome has never been different. We recovered and went on to new highs. FOQ: Why does it hurt? Short: Biology Long: As the …
How to Process Market Drops
Behold the effect of time on markets: Allow us to explain. You’re looking at the best and worst returns of stocks (blue), bonds (green) and a mix of 60% stocks to 40% bonds (orange), over four different time frames. One-year returns are straightforward. For the 5-year returns, “rolling” means from 1973 to 1977, from 1974 to 1978, from 1975 to 1979, and so on. Same for ten and twenty years. The returns are annualized. For example, the best 10-year return for bonds was 13.6% per year. The worst was 0.9% per year. Let’s focus on the stock returns in blue, …
Last Year’s Lessons
We’ll get right to the point: In investing, forecasts and predictions are worthless. And probably, “in anything”. But for our purposes here, no one in history has been right more often than wrong in such a quantity that would force the rest of us to acknowledge the existence of a true fortune teller. Of course, a look into all past predictions is required to make this assertion. We’ve certainly written enough about it over the years to make the case. And the folly of forecasting is no secret. But a full thesis this is not. Rather, we prefer to pick …