For me, it seems incredible that the “Beast From the East” weather we experienced was a year ago. Perhaps because of the unusual lateness of this cold snap makes it seem more prominent in our minds?
This set me thinking that in March 1989 when I turned 18 I recall how unusually hot the weather was for the time of year, compare this to March 2018 and you have two extremes in weather. Back in 1989, did I think Taunton was set to become a desert, and in 2018 did I believe the next Ice Age is upon us? No, in both cases (I don’t recall even thinking the questions), as we take this variances in our stride and put it down to freak weather (whether climate change is affecting weather patterns is a whole different conversation).
The point is to differentiate between weather and climate, the former is variable day to day and the latter tends to be fairly stable. We might not like the weather sometimes but my experience is we accept it and get on with our lives.
There is a parallel with investing here in that the daily/weekly/monthly gyrations of the equity markets are the weather whereas the long-term upward trend is the climate. Often, however, we ignore the climate and focus on the weather. If we get surprised by sudden market falls, we might react by selling instead of seeing them as part of this weather.
When we look back at past market falls we may view them from a non-emotional viewpoint and see them for they really are – temporary declines but in the heat of the moment this clarity seems absent. As Larry Swedroe put it in a recent blog post “If we were to look back at every other market decline, we would see there were investors who thought the only light at the end of the tunnel was the proverbial headlights of a truck coming the other way. In each instance, it turned out that wasn’t the case. And it’s likely that isn’t the case now either. In other words, every past decline looks like an opportunity; every current decline feels like risk.
As in many things in life when see how normal things are we tend to ignore them and get on with our day to day lives. Investing is no different for the long-term investor.
This article should not be considered investment advice or an offer of any product for sale, it contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular, strategy or investment product. Information contained has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not an indicator of future results.