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Grind Up And Crash

Markets Bull and Baird

*** From https://blog.rwbaird.com/. Bookmark it to see all posts by Michael Antonelli! ***

I said this two weeks ago on Twitter:


I’ll be honest with you, I never expected it to happen in January. 

I know you are probably nervous right now, keeping one eye on the market and one eye on your portfolio, but I’m here to tell you, this is just how things are in 2022. “Grind up and Crash” is how you need to be thinking about the stock market going forward.

Stock markets have always risen gradually but selloffs in the past were more deliberate and slow moving than they are now. You didn’t find out that your stocks or mutual funds were down until days later in the newspaper.

Fast forward to today and the entire investing world is hyper connected. Markets, data, sentiment, trading, podcasts, blogs, everybody knows everything instantly and they can act on any emotion with the push of a button.

Humans are irrational creatures; they aren’t going to take the time to think about their actions when they can push a button and quiet the pain receptor in their brain. 

Not only that, large institutions and market makers primarily trade electronically. If they want to sit out a few days (or weeks) things become very illiquid, making stock moves even more dramatic.

Toss in the fact that Twitter, Facebook, and other forms of social media can whip up a panic with endless “sky is falling” disinformation and the recipe for quick market selloffs is complete.

This is how it’s going to be from now on, why would it be otherwise? 

Stocks are down 10-12% to start the year because of worries about the Fed, and valuations, and too many retail investors, and whatever other reason you want to come up with. Believe me, there’s always a reason (click this please).

Do you know what the average intra year selloff for the S&P500 is going back to 1980? -14%. When I called for stocks to fall 15% I just called for the average thing to happen. 

My friend Morgan Housel said “all past declines look like an opportunity, all future declines look like a risk”. 

Do you see the irony in that? If you could go back in time and buy every one of those dips would you? Of course you would. Why is now any different?

Let me tell you a quick story about the biggest winners from the Crash of 2020. Remember that one? It wasn’t that long ago. 

As people dumped stocks in March, in the midst of a cascading nightmare, there was one entity who stood in and bought regardless of the panic sweeping through the system.  

Hedge Funds? Nope. Sovereign Wealth Funds? Nope. High Frequency Traders? Nope.

It was you and me. 

Every few weeks, retail investors buy the stock market in long term accounts regardless of what’s happening. Why? Because that money is being invested for decades. DECADES. It’s been called “the endless bid”.

It was us who stopped the selloff in March-April 2020, it was us who reaped the rewards as stocks climbed to new heights in 2021, it was us who managed to ignore the headlines of the day and stay on track.

All of the best investing, the kind that builds real wealth, comes down to two things: time horizons and patience.

If you want to sell right now because you’re afraid, ask yourself these questions before you make a catastrophic mistake: Have my reasons for investing changed? Have my goals changed? Has my time horizon for this money changed?

Instead of panicking do this: Rebalance. As stocks fall, and they become a smaller part of your asset allocation, rebalance. After all, if you’re not going to “buy low” why bother?

There is a fee you have to pay to earn equity returns and you are paying it right now in fear, uncertainty, and doubt. 

Nothing in life is free, especially not money. Understand how markets work and accept that there will never be a time where fear doesn’t occupy your brain while investing.

“The man who has anticipated the coming of troubles takes away their power when they arrive.”- Seneca