How To Make The Stock Market Work For You


Does what happen in the stock market every day make you happy or sad? If so, every year, you should be happiest on the 28th of October. Because 28th October is historically the best day of the year for stocks, with the S&P 500 Index rising 0.54% on average. It is also the best start date for any six-month period for stocks. This is according to a Bloomberg article citing number-crunching done by LPL Financial going back to 1950. This year, 28th October 2019 did not disappoint, with the S&P500 index reaching a new record that day and heralding more new highs since then.

For all that has happened in between – trade wars, yield curve inversions, Middle East tensions, Groundhog Day-style Brexiting – the global equity markets have rallied a whopping 20% year to date. Even investors with some bonds in their portfolios have no cause for sadness, given that short-term world government bonds of the highest quality have returned more than 3% and intermediate bonds have given equity-like returns in the 7%-8% region.

I suspect though, that if you watched the markets every day, your feelings would be more ambivalent. The Bloomberg article that had cited the 28th October trivia described the surging market movement as “climbing the wall of worry”. To reverse an old adage, the price of constant vigilance, when applied to markets, is not freedom, but restlessness. This anxiety can cause us to take actions that we think might benefit us, like “taking a profit”, but end up hurting us instead, because it deprives us of the exponential power of compounding returns over the long term. The chart below reminds us how missing just a few days of the return (and listening to experts on the macro situation might have cost you that) can cost us quite a lot of money and put a distance between us and the goals we are investing towards.

If I were to give an alternative title in Chinese to the chart, I would call it 事倍功半 (pinyin: shi4 bei4 gong1 ban4), which means to put in multiples of effort or activity, but achieve only half the desired result. This is what happens with market timing. This is not to say that markets will continue to go up from now in a straight line – they definitely will not! But we know from data about active fund management that market timing is close to impossible to get right consistently; and we also know that if we stay invested in globally diversified portfolios over the long term, that we can reap a decent enough market return.

dimensional-fund-advisersSource: Dimensional Fund Advisors

Where you can achieve a definitive gain for very little effort (事半功倍 shi4 ban4 gong1 bei1, meaning putting in half the effort to achieve a multiple of benefits), is to concentrate on areas under your control and where these benefits are known beforehand. In short, this means sticking to your financial plan, staying invested to capture market return and looking out for national schemes that have good and unique benefits.

Successful investing is about having sufficient returns to meet goals for the life we want to live, not about winning a hypothetical trading competition where the odds are against us. Instead of a mindset of maximisation of market gain, we would do well to have a good financial plan that addresses everything we need to meet our life goals no matter what happens, comfortably and sufficiently. Once we have that settled, we leave the markets to work for us, so that we can have fixedness and confidence that will not depend on the market news of the day. We are then free to find our continual happiness instead of in our family and our friends, in work and play, and in intentional, purposeful living, today, tomorrow and all the days there are to come.

This is an original article written by Chuin Ting Weber – CFA, CAIA, Chief Executive Officer and Chief Investment Officer of MoneyOwl, Providend’s associate company. Providend and MoneyOwl have a shared investment philosophy.

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