Many years ago, sailors believed that mythical creatures called Sirens would lure them to their watery
graves. The thought was that these half human creatures would sing an enchanting tune that no sailor
could deny. In the sailor’s quest to get to the Sirens, they would meet their end, often crashing on hidden
rocks.
While Sirens are simply mythical creatures, there are people that take up their role of singing an enchanting
tune. Today many financial “journalists”, commentators, gurus, financial newsletter writers, etc. take on
the role of the Siren. They proclaim to tell the future, knowing what stocks or sectors to buy or sell, and
when to do this trading. They make timing calls, often predicting the worst if their words are not followed.
They are generally wrong, yet keep singing their dangerous song. And just like a broken clock is correct
twice a day, sometimes these gurus make a lucky call. Their following grows and unfortunately these
investors are ultimately led to behavioral mistakes which can easily leave them in financial ruin.
While it would be wonderful if there was some way to predict what the capital markets may do, predicting
the future, at least in the short term, is just not possible. Could we be heading into a recession? Will
inflationary pressures result in significant declines in financial assets? Will the Russian/Ukraine conflict
escalate? Unfortunately, there is no way to predict how these disasters du jour will turn out.
However, using history as the only guide that we have, we do know that since 1929, looking at twelvemonth rolling periods, the broad S&P 500 Index has delivered positive rates of return 74% of the time.
Over five-year rolling periods of time the probability of positive returns jumps to 87%, and over fifteen-year
rolling periods of time the probability of positive returns jumps to just shy of 100% (99.8% to be more
exact). Time is the volatility killer.
What happens in the shorter term just does not matter. While increased volatility in the capital markets is
not pleasant, with a longer-term focus, this volatility is just noise. The best strategy is to tune out the Siren
song from so many sources that are influencing you to react. Planning, combined with a disciplined
strategy, is the best way to chart an appropriate course to help you create a comfortable income that you
will likely not outlive, while helping you to accomplish your long term financial goals.
While current global events do not seem very positive, things will get better, we just do not know when.
Likely well before the current storm passes, publicly traded businesses will again appreciate in value,
typically just before the Sirens song seems its most enticing. The best approach remains to focus on your
long term goals and rebalance periodically to make sure that your portfolio remains aligned with your
planning. Simple advice in a very complex world.
“On what principal is it, that when we see nothing but improvement behind us, we are to expect nothing
but deterioration before us?” Thomas Babington Macaulay, 1830
All My Best,
Bryan