With the 10-day forecast now extending all the way through the end of February, I believe we can now officially declare that this was a winter that wasn’t.
For the snow fans, the season started off well with a white Halloween. Hopes were high as the Farmer’s Almanac declared in December:
“Our extended weather forecast, which is based on a mathematical and astronomical formula, calls for below-average temperatures and lots of snowstorms, sleet, ice, rain for much of the Great Lakes, Ohio Valley, and Midwest areas of the country.”
I am not sure whether it was the math or the astronomy, but somewhere in the forecasting process there was a significant miscalculation which was gradually unveiled one “winter” day at a time.
Short-term market prognosticators face the same precise forecast challenges. Whether they use math, charts, research, or astronomy, day by day most are humbled by forces beyond their control.
Long-term market prognosticators have the luxury of time. They simply predict that over long periods of time investments in stocks will provide them with higher returns than bonds or cash.
Since its inception in 1950, the S&P 500 Index has had 18,649 trading days. It has closed down on 46.3% of those days, up on 53% of those days, and flat on .7% of those days. Thus, each day in the market is roughly a coin flip.
On January 3, 1950, the S&P 500 Index closed at 16.66. On Tuesday, February 20, 2024, it closed at 4,975.51. Even while losing ground on 46.3% of trading days, over long periods of time the stock market has been rewarding to those with patience.
Of course, your investment time horizon is likely less than 74 years. So what about the last 8 years?
The S&P 500 Index closed at 1,945.50 on February 22, 2016. Over the last eight years we have experienced the following unpredicted global events: Brexit, civil unrest, a global pandemic, massive supply chain disruptions, rising trade tensions, plunging and soaring oil prices, and wars in Ukraine and Israel. After accounting for all of these unfortunate surprises (and more) by closing lower 45.6% of the time, the S&P 500 Index still managed to close at 4,975.51 yesterday.
It is true that past performance does not predict future results. It is also true that patient long-term investors who can resolutely focus on eight-year time horizons vastly improve their odds of success over short-term traders that subject themselves to the daily stress of what the unpredictable market will do tomorrow.
The coming months will likely be filled daily distractions that will likely cause the financial markets to go down almost 50% of the time (or even more). This is just one year of your eight-year time horizon for long-term investments. This, too, shall pass.
It turns out accurate predictions about short-term events are really difficult. Perhaps if the Farmer’s Almanac predicted winters eight years in advance and simply stated that winter will come and winter will go, their successful prediction percentage would be much better.
P.S. From the December 2023 Farmer’s Almanac: “Potential blizzards for this first week of March will remind folks in the North Central States that winter isn’t over yet.” Please be sure to start your blizzard preparations now. Or not.
Quote of the week: Morgan Housel: “Part of the reason pessimism is more seductive than optimism is because, despite an awareness of how powerfully things have changed in the past, it’s easy to underestimate our ability to change in the future.”
Graphic Source: AccuWeather
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. One cannot invest directly in an index.
