I find new investors are often very concerned about speculating the near future. I’m never asked, “Do you think the stock market is going to make money over the next 20 years?” (The answer is yes, it will). I’m always asked things like “Do you think I should wait before I buy in case there is a drop coming up?!” (The answer is no, I don’t think you should wait, and I have no idea if a drop is coming up).
And these new investors can hardly be blamed. When we turn on the TV or browse the internet, we’re bound to see headlines like these. They’re generally opinion pieces often published by news outlets purporting to forecast, project or otherwise prognosticate what’s over the hill for the stock market. And while I’m a big believer in journalism and experts in their field, I don’t believe these types of headlines qualify as either.
Forecasting the stock market is different from forecasting other things. For example, economists are pretty good at forecasting upcoming jobs numbers, GDP growth, and other economic indicators. But the stock market isn’t exactly a reflection on how the economy is doing, it’s partially a BET on whether the near future is going to outperform or underperform our EXPECTATIONS. And those expectations are built on all of those solid projections. Trying to figure out if those projections are too high or too low is a fool’s errand. That’s why opinion pieces in the news generally have plenty of people betting on both sides.
In his book, “The Simple Path to Wealth” JL Collins describes the stock market as glass of beer. There’s always some foam at the top, that’s the short term speculation or bet. But underneath the foam is the actual beer. That’s the long term value. Don’t worry about how much foam there currently is. Buy the beer for the beer.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.