Did You Know Stocks Fall 14.2%...a YEAR???

An episode of the The Josh Scandlen Podcast podcast, hosted by Josh Scandlen, titled "Did You Know Stocks Fall 14.2%...a YEAR???" was published on March 10, 2019 and runs 10 minutes.

March 10, 2019 ·10m · The Josh Scandlen Podcast

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Summary

Every year the stock market, as represented by the S&P 500, has significant drops in value.  In fact, the JP Morgan research I cite in this video shows the market drops in value on average 14.2% a year.  Unfortunately, many investment prognosticators fail to take this fact into consideration when they discuss investments... Looking at you Dave Ramsey! They simply cite the average returns over time and thus make assumptions based on those averages.  But you should NOT do that! We are human beings and thus live in the moment.  You can cite all your the averages you want but if I look at my account in the middle of August 2011 and I'm down 19% from its high, the averages become meaningless.  Today is my only concern.  If you've studied or even heard of Benoit Mandelbroit's discussion of fractals, you will see how fractals can be seen in basic investment analysis.  We tend to look at the 'stock market' from the bird's eye view.  The market averages 10.5%  a year.  But if we break out our Google Images tool and look deeper we will see that on any given year there is a 25% chance the market will lose value.  Finally, if take a microscope and look even deeper, we can see that WITHIN any given year, the market actually drops on average 14.2% of the time! Yet, we don't hear about these short term losses much do we? We simply look at the long term averages and extrapolate info from those averages to use in our day to day thought process.  That is not the way to invest, unless you know going in the market is a doggone volatile place.  If you know the market is volatile from the outset and are prepared to deal with that, the day to day iterations are meaningless to you.  But if you only think you're going to gain 10.5% on average and suddenly, over a 45 day period, you're down 19%, well what are you going to do then??? To a successful investor you MUST stay the course. But that means you must have a healthy ability to deal with daily market fluctuations. Ideally, you simply invest in a diversified portfolio and pay no mind to it again except for once a year when it comes time to re-balance. If you want to check your accounts regularly, just remember, you're in for a rocky ride. Much more so than what you've been lead to believe from the industry commentary.

Episode Description

Unfortunately, many investment prognosticators fail to take this fact into consideration when they discuss investments... Looking at you Dave Ramsey!

They simply cite the average returns over time and thus make assumptions based on those averages. But you should NOT do that!

We are human beings and thus live in the moment. You can cite all your the averages you want but if I look at my account in the middle of August 2011 and I'm down 19% from its high, the averages become meaningless. Today is my only concern.

If you've studied or even heard of Benoit Mandelbroit's discussion of fractals, you will see how fractals can be seen in basic investment analysis.

We tend to look at the 'stock market' from the bird's eye view. The market averages 10.5% a year. But if we break out our Google Images tool and look deeper we will see that on any given year there is a 25% chance the market will lose value.

Finally, if take a microscope and look even deeper, we can see that WITHIN any given year, the market actually drops on average 14.2% of the time!

Yet, we don't hear about these short term losses much do we? We simply look at the long term averages and extrapolate info from those averages to use in our day to day thought process. That is not the way to invest, unless you know going in the market is a doggone volatile place.

If you know the market is volatile from the outset and are prepared to deal with that, the day to day iterations are meaningless to you. But if you only think you're going to gain 10.5% on average and suddenly, over a 45 day period, you're down 19%, well what are you going to do then???

To a successful investor you MUST stay the course. But that means you must have a healthy ability to deal with daily market fluctuations. Ideally, you simply invest in a diversified portfolio and pay no mind to it again except for once a year when it comes time to re-balance.

If you want to check your accounts regularly, just remember, you're in for a rocky ride. Much more so than what you've been lead to believe from the industry commentary.