Investing Is Hard - 15 Jul 2020
Near the start of every year, the President of the United States delivers the State of the Union Address. The speech is essentially a report card on how the US fared in the year that just passed and what lies ahead. It’s also a good gauge of the general sentiment of the US population on the country’s social, political, and economic future.
In one particular year, the then-US President said:
“We are fortunate to be alive at this moment in history. Never before has our nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats. Never before have we had such a blessed opportunity — and, therefore, such a profound obligation — to build the more perfect union of our founders’ dreams.
We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back budget surpluses in 42 years. And next month, America will achieve the longest period of economic growth in our entire history.
My fellow Americans, the state of our union is the strongest it has ever been.”
In another particular year, the US President of the time commented:
“One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who’d already known poverty, life has become that much harder. This recession has also compounded the burdens that America’s families have been dealing with for decades — the burden of working harder and longer for less; of being unable to save enough to retire or help kids with college.”
What do you think happened to the US stock market after the first and second speeches? Take some time to think – and no Googling allowed! If you had to bet on whether US stocks rose or declined after each speech, how would you bet?
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Ready?
The first speech was delivered in January 2000, by Bill Clinton, near the peak of the dotcom bubble that saw US stocks – represented by the S&P 500 – fall by nearly half just a few years later. By the end of 2010, US stocks were lower than where they were when President Clinton gave his State of the Union Address.
Source: Yahoo Finance
The second speech was from President Barack Obama and was from January 2010. The US stock market bottomed out in March 2009 from the Great Financial Crisis. And from January 2010 to today, US stocks have been on an absolute tear, rising three-fold.
Source: Yahoo Finance
Investing is hard because the best time to invest can actually feel like the worst, while the worst time to invest can feel like the best time to do so. I’ve said before that I think “investing is only 5% finance and 95% everything else.” This 95% includes psychology and control of our emotions. But we humans are highly emotional creatures – and this is why investing is hard. The best antidote I currently have, is to be diversified geographically, and to invest regularly and – crucially – mechanically.
