My Financial Musings...“Summer silly season” is upon us and the Minions assemble
The summer season on Wall street is traditionally when the Minions are in control while their bosses decamp to the Hamptons or Nantucket. Markets are often more volatile, a euphemism for going up and down. Sometimes it feels like the gentle swell of the ocean and others more like a big roller - so get ready for some surfing!
Actually having Minions in control illustrates perfectly how the market functions most of the time and serves as a useful reminder as to what actually drives market moves and why we invest in equities.
As far back as the 1930s, the legendary investor Benjamin Graham made the comment that the stock market acted like a voting machine, representing the sum total of everyone’s view at a single point in time. As we know public opinion can be both subjective and emotional - the stock market is a perfect reflection of this.
Warren Buffet, that other legendary investor expanded on Graham’s observation, explaining that “whilst in the short run, the market is a voting machine… in the long run, the market is a weighing machine.” This metaphor illustrates the point that whilst short term prices are driven by sentiment, long term trends are driven by financial results- something you can measure.
So ignore the emotional roller coaster; go ahead and surf those summer waves and let the market act as a weighing machine. Invest for the long term because over time the stock market generates higher returns than cash and bonds according to numerous studies (1).
(1) According to global investment bank Goldman Sachs, “10-year stock market returns have averaged 9.2% over the past 140 years”.https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-returns-to-halve-in-coming-decade-8211-goldman-sachs-59439981
The S&P 500 index is a benchmark of American stock market performance, dating back to the 1920s; the index has returned a historic annualized average return of around 10% since its inception through 2019. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp