After a rough August and September, traders and investors alike looked forward to finally turning the calendar to October.
Their expectations were that October would be a treat relative to the previous two months. Historically, this is the case. But so far, this October has been a great example of how past performance does not predict future results.
Instead of a financial market sugar high, we have received an additional geopolitical conflict, a leaderless U.S. House of Representatives, and persistently rising long-term interest rates.
Interest rates on a 30-year mortgage are flirting with 8%. New and used cars are selling at a premium due to low supply, and auto loan rates are near 7%. Credit card interest rates and defaults are on the rise. The grocery bill is not getting any smaller, though they say the inflation rate is getting smaller. Rumors of an imminent recession persist. The 2024 political campaigns are already in full smear mode.
Short-term traders live in this anxiety-inducing world. Every moment of every day they react to rumors and headlines, They try to predict the unpredictable. They bet on short-term market direction. Imagine living in such a stressful trick-filled world.
Thankfully, a short-term trader’s trick can be a long-term investor’s treat.
While long-term investors live in the same world, read the same headlines, and experience the same economy as short-term traders, they bravely resist the anxiety-inducing obsession with daily, weekly, monthly, and annual market fluctuations.
Long-term investors have the treat of observing this fray from a distance. They know that their personal financial plan is designed to endure occasional tricks where their account values may temporarily decline in value due to jittery short-term traders. They also know that such short-term tricks have the potential to be long-term treats as valuable long-term assets can be purchased from the fearful at attractive prices.
This coming weekend as the costumed crowds arrive at your front door to exclaim “trick or treat,” do not get anxious about their scary apparel or disoriented by their demands. It is simply a trick. Please just give them a treat.
And when short-term traders dress up to scare you by creating market volatility, know that it is a very similar short-term trick. Admire their creativity for coming up with new reasons to panic, and then give yourself a treat for ignoring them and sticking with your long-term plan.
If someone you care about needs assistance in identifying tricks or would benefit from treats, please share us with them.
Quote of the week: Peter Bernstein: “The trick is not to be the hottest stock picker, the winning forecaster, or the developer of the neatest model; such victories are transient. The trick is to survive.”
