Watch and Wait

Every day on my way to work I would walk down West 55th street . And every day I would see the same homeless man sitting on narrow steps wedged between a diner and a dry-cleaning store.

He was there when I walked home in the evening. Watching the world and the people go by.

He seemed different from most of the homeless people in the area. Lots of people would say hello to him. He spoke Spanish and English. In an odd way he looked rather neat despite the long hair, beard and general griminess. He didn’t give off any crazy man vibes.

During the holidays the company I worked for gave us blankets. On my way home one night I gave him my blanket. He kind of smiled and said, “thank you”.

After a few months I started to notice what was different about him. He never begged or asked for money. He didn’t have a sign asking for money either. Sometimes he would just say “Good Morning.” He might be drinking what looked like coffee but there was never any food around him.

Then one day I noticed he was wearing what looked like a pair of brand-new white tennis shoes and I thought “great, he has good shoes”. Another day when he was talking to someone, I noticed his teeth looked pretty good. Perfect in fact. A lanyard with a bunch of id’s slipped out of his beaten up and somewhat filthy coat.

Then, it struck me. He wasn’t a homeless person. He was working undercover. HE was waiting for someone or something to happen. And then he was gone.

You might think this story has nothing to do with the markets or investing, but it does.

Despite the relentless financial news cycle that has “breaking news” every hour, most of the time nothing is happening. There isn’t much activity between traders, the markets are not doing anything newsworthy. Tiny moves might happen, but nothing dramatic occurs.

In fact, many professional investors and traders sit around watching the markets. For long periods of time. Like my homeless undercover man. Watching and waiting.

So, there are two points to my story.

The first point is that investing takes patience. You can be invested without reacting to the daily news cycle.

My second point is something we call “getting whipsawed.” Getting whipsawed in the markets means you act, like buying or selling securities based on “news”. In the financial markets by the time you are seeing the news, it is old news. It is not the time to act.

News organizations are great at embellishing something out of nothing. Every time the company I worked for sold $500 million in Treasury bonds an article would appear on the front page of The Wall Street Journal,
As I often explained to friends ,selling $500 million does not mean that something significant has happened. It does not mean it is a trend.

When an investment manager who oversees trillions of dollars, sells $500 million of Treasuries it can be for any number of reasons that are not alarmist.

Rebalancing is one reason. An administrative action could be another reason. Making a small sector change : Selling Treasury bonds and buying corporate bonds.

The information you are receiving is designed to pump up news cycles but the people who are deciding what stocks or bonds to buy or sell in a mutual fund or exchange traded fund do not act on news.

And you shouldn’t either.

This is the key to true long-term investing. Do a little research on something you are interested in. Read analyst reports that are often free if you have an account with companies like Blackrock, Fidelity or Schwab. Try searching Yahoo finance. Investopedia has very useful information that is not overwhelming.

Buy the stock of a company you like and plan to hold it. A holding period can be 3 -5 years.
This seems like a long time to be patient and watching but remember that every year the return on your investment will be different. Last year, 2018, the stock market as measured by the S&P 500 was down about 4%.
In 2019 it is up, year to date, about 20%. If you sold last year because the market was down, you lost out this year.

Essentially a longer time period gives your investments time to perform. Time to work for you.

If anyone tells you that they made a lot of money in the stock market in a short period of time, be skeptical and ask them to tell you how much they have lost.

 

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.