Bad Stuff Happens
Given that markets are pursuing their favourite pastime of bouncing up and down like a manic depressive doing the Hokie Cokie on a Space Hopper, investors might be forgiven for wondering what they should do next. Fortunately the world is full of people offering sage advice. Unfortunately none of it is very useful, at least where 20:20 foresight is concerned. The underlying lesson is, perhaps, an odd one. We should invert the normal mindset of the average investor, who's an inveterate, if rather foolish, optimist, and proceed on the basis that something is always about to go badly wrong. After all, it nearly always is.
Time Travelling Idiots
When markets become tumultuous, which is often, lots of people pop up to explain what's going to happen next. Many of their arguments are highly plausible. Sometimes they're well written. Occasionally they're both. Unfortunately, unless physics is completely wrong and time travel is actually possible they're all engaged in an activity we usually call 'guessing'. Although this is often entertaining, spending a lot of time reading this stuff is pretty much a waste of time when it comes to investment. After all, in 1939 markets completely failed to take account of the possibility that Hitler might run amok in Europe despite small hints like the invasions of the Rhineland, Austria and Czechoslovakia. As we saw in Why Markets Crash they didn't spot the First World War either: so a perfect record when it comes to global conflagrations, then. Meanwhile, in 1987 stockmarkets collapsed for reasons no one has yet been able to agree upon, let alone figure out how to predict (see Black Swan Down). In fact, if anything, if you and I can see a crash coming there's a reasonable chance even the buffoons that run the world's finances might manage to avoid it.
Although it'd be best not to count on it.
Danger, Private Investor
There's a wider issue, though, because the accepted wisdom is that even if stuff goes wrong in the short-term you can't go wrong if you invest in stock markets for the long-term, a period usually defined as about twenty years. Unfortunately, as Elroy Dimson points out in Triumph of the Optimists:
"While a country has only one past, there are many possible futures. The likely rewards from equity investment are worth having…
