The first quarter of 2018 is on the books. The stock market got off to a great start, adding to last year’s run.
Then volatility crashed the party…things were going so well.
With all the volatility in the stock market lately, I thought it would be a good time to point out that this is only natural. Sometimes it’s stomach churning. It’s uncomfortable. It’s downright painful. Scary, even. But it’s all part of the experience.
So if those feelings sound a little familiar, I thought Peter Lynch’s perspective might offer some reassurance to help settle your nausea:
I love volatility…I think volatility is terrific.
Okay, maybe that’s not the most helpful for a queasy stomach.
Lynch saw volatility as an opportunity. Others might see it as a burden. It all depends on your perspective.
Lynch eventually realized that volatility is an inherent feature in markets. So he chose to embrace it, which meant he also chose to suffer through it.
That’s his unsurprising secret. Suffering through uncomfortable times helped produce his surprisingly good results.
That’s why discipline and patience are mentioned so often because, with volatility, time is a great cure.
And yes, Lynch was highly skillful, one of the best. His returns were phenomenal and impossible without his ability to suffer.
He also had a few other good quotes that are a bit more helpful than that first one. So here ya go (the first is a favorite):
You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready — you won’t do well in the markets. If you go to Minnesota in January, you should know that it’s gonna be cold. You don’t panic when the thermometer falls below zero.
Human nature hasn’t changed a lot in 25,000 years, and some event will come out of leftfield and the market will go down or the market will go up. So volatility will occur and markets will continue to have these ups and downs. I think that’s a great opportunity if people can understand what they own.
Make no mistake: Corrections can be scary experiences. People lose confidence in the economy, in their portfolios and in the companies in which they’ve invested. It’s like a storm that rolls in and blackens the sky. Fear sets in.
If only we didn’t have indexes…that enable us to track the ups and downs of “the market,” we’d never have this problem with corrections. Do you know what the range is between the high and the low price of the average stock on the New York Stock Exchange in any given year? Fifty percent. So most stocks fluctuate 50 percent from top to bottom every year, without any fanfare…
But we do have indexes and we are preoccupied with their ups and downs, so we will have scary corrections.
And finally, this Q&A exchange in 1997:
Q: All right. So you’re optimistic about the future of the American economy. Earnings potential for most well-run companies will do all right.
Peter Lynch: But people have to understand we’ve had nine recessions since World War II. We’ll have other recessions.
Q: But we’re not in one now.
Peter Lynch: But we may have one in the future and don’t get — we’ll have one. Sometime it’ll happen and no one will tell you when it’s going to happen. It’s just —
Q: Well, but won’t the fundamentals tell you?
Peter Lynch: No. You’ll find out after the fact. All of a sudden, you’ll notice orders slowing. Prices get more competitive. Then earnings are down. I mean, usually, you find out after the fact. No one declares — everybody isn’t saying, “We’re going to have a recession for five years.” It just doesn’t happen.
When you do this long enough, you come to realize that investing is rarely a stroll through the park. You never know what might happen next. Embracing that reality is never easy, but it’s important to long-term success.
- A Guide to Getting Good at Dealing with Stock Market Chaos – Safal Niveshak
- How to Talk to People About Money – M. Housel
- Rational Markets Theory Keeps Running Into Irrational Humans – N. Smith
- Warren Buffett Explains How to Invest When Inflation Hits Markets – CNBC
- How to Think About Corporate Tax Cuts – J. Wolfers
- Learning a Little About Something Makes Us Overconfident – HBR
- Why You Stink at Fact-Checking – The Conversation
- Carl Sagan’s Tools for Critical Thinking and Detecting Bullshit – Kottke.org
- Congress, Not Amazon, Messed Up the Post Office – B. Ritholtz
- The Striking Similarities Between Mortgage-Backed Securities and the 17th Century Financial System – MarketWatch
- The Dizzying Story of Symphony of the Seas, the Largest and Most Ambitious Cruise Ship Ever Built – Wired