“If past history was all there was to the game, the richest people would be librarians.”
For those of you with great short-term memory, you may recall that on June 23rd, the Dow Jones Industrial Average dropped about 200 points shortly after opening. This grabbed the attention of the financial media, which came out with several online stories laying blame for the Dow’s downdraft on Greece’s deteriorating debt problems and civil unrest.
When I returned from lunch that day, I found a phone message from a reporter at the local newspaper, seeking comment about what the morning’s market slide meant for investors. Never at a loss for words, I called the reporter back. We had a very pleasant conversation, maybe ten minutes, during which I made the following salient points:
1. The headline grabbing news from Greece was meaningless “noise” propagated by the financial media. Its part of what we call “financial pornography”.
2. Even if Greece’s civil unrest was the causative factor for the market decline, so what? What happened in Greece 6-12 hours earlier has no predictive power as to future market behavior.
3. As passive investment managers, we focus on things we can control: portfolio diversification, investment risk, expenses, and, to some extent, tax efficiency.
I anxiously waited for the paper’s next edition to see my name and wonderfully insightful words in print. When it finally appeared the next morning, the article quoted many other financial professionals, but not me. My comments must have been too mundane. The article instead quoted several other financial types who expressed their views on the current markets and potential long-term implications. One investment manager even said that due to instability in Greece he, “…was cautious on the markets.” How wrong he was! Now, as I write this article ten days after the fact, we have just experienced one of the best market rallies in two years! If the news of the June 23rd panicked investors to get out of the markets, where were the headlines telling them to get back in so they could enjoy the huge rally? I missed that news bulletin.
The moral of this modern day Greek tragedy: being dull and boring, and keeping your eyes on the road ahead, is better than driving your car by looking in the rearview mirror and crashing. By ignoring overheated headlines, passive investors can ride out bumps in the market that more reactionary investors get stuck in. Two quotes from Warren Buffett are also fitting here: “In the business world, the rearview mirror is always clearer than the windshield” and “If past history was all there was to the game, the richest people would be librarians.”
Ken Karr, CFP and Adam Drake, CFA are partners at Highland Investment Advisors, LLC, a registered investment advisor (RIA) providing investment management and financial planning since 2006. Based in Milwaukee, WI, the firm serves clients in eight states and manages investments for individuals, retirement plans, not-for-profits, and independent investment advisors. They can be reached at 414-755-2309 or firstname.lastname@example.org