Remember, the Stock Market is Driven by Investor Emotion and Sentiment
I can finally write again! To say the last four months were difficult would be an understatement! However, things here in Ontario are looking up. Just last week, our daughter’s day care reopened. Even though I’m home on maternity leave, we opted to send her back to daycare a couple of days a week. She was pumped! It was so good to see her back with her friends and chat with her teachers.
With daycare back in the picture, I have two days a week (during nap time) to write again. I’m going to make the best of it. For those who care – I’ve made it through the 4 month sleep regression with baby P and am now in the solid two naps per day routine! Pop the champagne!!
Current Market Conditions
The last couple of months have seen tremendous recovery after a terrifying dip in late March. Here is a chart of the three main stock indexes illustrating the point:
Personally, the recovery has been surprising. While I’ve never advocated for “timing the market” I hope you were able to take advantage of that massive dip in March. Even as the number of COVID cases continued to rise in the United States, investors believed that the worst was behind them and thus flooded the market to get in on cheap deals. Who doesn’t like a cheap discount?!
Investor Emotions
Remember, investing isn’t always rational, and when many people do irrational things (like invest), the market moves (very slowly, every single day). It’s importation to never get caught up in the emotion. Invest with your head, not your emotions.
Right now, I’m finding it difficult to separate fact (like unemployment rates) and reality (continued market increases). A big issue for me is debt. And governments around the world (including ours here in Canada) have added astronomical amounts of debt to help citizens and businesses cope with the effects of the pandemic. It is going to take decades to dig ourselves out of this and the repercussions might be difficult to extrapolate to the stock market.
I don’t want to get into a lengthy post about taxes or the consumer price index, but lets just say that both are going to go up which usually means tough decisions for consumers (e.g. postponing purchases they might have easily made before) = less revenue for business = less profit for investors, stock price declines or even worse, dividend cuts.
Where Do We Go From Here?
At this point my advice is simple. Keep investing. Over the course of 20 or 30 years, this will again be a blip on a chart.
Think rationally. People still need food, gas, shelter and can generally afford a few extras. Will you be going on that all inclusive vacation this year? Probably not. Investing in the airline business might be a smart play now, but it could take several years for that industry to recover.
Think simple. Invest in what you know and you will end up on top.
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Investing Emotions
