The Financial Media Salivates
Here’s Wall Street’s Market Watch on Monday, June 24th at 10:18 a.m.:
Headline: “U.S. Stocks Slide on China-Led Global Selloff”
“Monday’s selloff comes after last week’s bruising selloff on Wall Street…European stocks tumbled and Shanghai stocks melted down….”
After quite a run so far this year with very few down days, equity prices cooled off toward the end of last week and now into this week.
Not good or bad news for all of us, but GREAT news for the financial media who’s been starving for a hiccup to start the chorus of alarm bells to garner your wavering attention.
After all, it’s no fun being in the financial media business when market price volatility is only on the up side. In order for them to put their best copywriters to work, they need some down side too!
Notice the terminology in the headline and first paragraph:
▪ “Melted down!”
Doesn’t the term “selloff” just scare the heck out of you?
Have you ever thought about the term “selloff”? What exactly does that mean?
It sounds like everyone who’s ‘in the know’ is selling, thus you’re missing the boat by not doing so too.
The reality is there’s a fixed number of shares circulating out there. For every share of a given company that is sold, there is another person on the other end of that transaction who’s “buying”.
We have to always remember that!
Couldn’t they just as easily say, “….Global Buyoff” because for every person “selling” their shares, there’s an equal number of shares being “bought” by someone else.
In other words, for every person who chooses to sell (for whatever reason they have for doing so), there’s another person on the other end celebrating their good fortune because someone’s willing to sell them shares in the company they want to own at the price they’re willing to pay for them!
I know this sounds so simplistic, but it’s so important to protect your confidence and not allow brilliant terminology used by top financial media copywriters to influence your carefully prepared long term plans.
The reality of what’s happening to prices of companies (stocks) right now is “this is normal”!
As a rational, long term owner of shares of the great companies of the world, prices temporarily cooling off does not, and cannot qualify as news.
Nor does it qualify as an event worthy of discontinuing your ownership, i.e. selling!
Because market prices retreating 5-10% is nothing new. Just as market prices rising 15+% earlier this year didn’t alter your plans.
If you’ve never heard this statistic before, here’s a terrific one to plant in your memory during cooling off periods like this: the average peak to trough “intra-year” drop in the price of the S&P 500 Market Index is 14%.
Let me repeat and clarify that for a moment because it’s a very, very important fact:
In any given year, the average percentage drop that we’ve experienced at some point during that year is 14%. In other words, if you take a look at the high and low points of each year, you’ll see an average price drop of 14%.
What we can take away from that is that it’s completely “normal” for the stock market to have cooling off periods during any given year.
It shouldn’t necessarily give you the “warm and fuzzies” and lead you to celebrate, but it also doesn’t qualify as a phenomenon worthy of panic.
Unfortunately, this is not how the overwhelming majority of retirees think and behave. They spend their lives in constant reaction to everything which leads them to make the same costly mistakes over and over again.
Feel proud of the fact that you’re not one of them.