The stock market is a giant distraction to the business of investing.
If you believe that on average the stock market should go up over time, i.e. there is a positive equity risk premium, then attempts to time the market and/or fine tune your portfolio are net-net likely to decrease your after-tax returns. Bogle continues on:
It is corporate America that creates value; the stock market itself creates none. In fact, the stock market subtracts value, due to all the costs we pay to play the game.
A book called Shut Up and Wait.
Each page is just this chart. pic.twitter.com/gfggy47U6q
— Morgan Housel (@morganhousel) July 24, 2017
Patience in today’s technology driven world seems to be in short supply. Oliver Burkeman in the Guardian writes:
But now we don’t need to wait for most things, patience has become a form of control over the world and, as she puts it, “over the tempo of contemporary life that otherwise controls us”. In this new environment, there’s nothing remotely passive about standing in front of a painting for three hours. On the contrary, it’s a subversive act. On the other side of impatience – if you can learn to wait out that jitteriness – lies power.
Exercising your patience muscles requires work. One way to do that is to restrict, if not eliminate, your social media presence. Cal Newport author of Deep Work doesn’t use social media at all and has lived to talk about it.* From a 2016 TEDx talk:
Another less drastic tactic is to turn off the notifications on your smartphone. It doesn’t prevent you from using social media, and other stuff, but it does put you back in control. David Pierce at Wired writes:
Kill your notifications. Yes, really. Turn them all off. (You can leave on phone calls and text messages, if you must, but nothing else.)…Allowing an app to send you push notifications is like allowing a store clerk to grab you by the ear and drag you into their store. You’re letting someone insert a commercial into your life anytime they want. Time to turn it off.
Number one is understand that CNBC wants to make you poor and stupid. Turn it off…That is the first thing you can do. The second thing you can do is learn some financial history.
Jonathan Clements at Humble Dollar thinks time spent on the markets has not been useful for him. Clements writes:
More than anything, I wish I hadn’t spent so much time watching the markets. Admittedly, this was partly professional necessity. I was occasionally called upon to write about the markets, so I needed to know what was going on. Still, I could have spent a lot less time looking at the daily ups and downs, and yet I didn’t…It’s information without insight, and yet it gobbles up time—a loss I feel more acutely as I age. The upshot: I’m trying to train myself to look less, but it’s a struggle.
One of the reasons we watch the stock market, as Clements notes, is the illusion of control. That somehow our attention can affect the outcome of broader, global events. Our ability to sell (or buy) any asset class, at any time, makes it tempting to watch the markets in order to find a profit making opportunity. Most people don’t want to trade but they can still get sucked into the market morass.
I have historically been skeptical of the value of illiquid asset classes like private equity and venture capital for investors, both large and small. In theory, you can replicate the returns of private equity with small cap value stocks and some leverage. However few investors, in my opinion, would hold through the resultant volatility. When you view the illiquidity of assets, like PE and VC, as a commitment device then they make a lot more sense. Admittedly you are paying a lot in terms of fees for the privilege of locking your money up for up to a decade but it also prevents you from bailing out at the first sign of trouble.
The time spent watching, and worrying, about the stock market can be better spent. One thing you could do is to actually take a genuine rest. As I wrote recently:
Life isn’t a sprint, it’s a marathon. But in the modern age we have to think about it as a series of sprints, followed by periods of rest and recovery. Or as we in the finance game like to say the long run is made up of a series of short runs. Maximizing your potential depends on being able to rejuvenate your mind and body.
For most people, maximizing your potential, and portfolio, will not come from watching tick-by-tick data on financial television.