Three Things I Think I Think – Lose Money With Friends Edition
Here are some things I think I am thinking about:
1) Markets In Turmoil! You just have to love the financial media. Every time there is a small hiccup in the global economy they latch onto it to drive up viewership. Fear is, by far, the most powerful emotion and the media has mastered the art of selling it. I suspect this is one reason why markets have become more volatile over the last 20 years. The 24 hour news cycle isn’t making us more informed and rational. It’s making us stupider and more emotional.
That said, you just have to love this chart from SentimentTrader showing CNBC’s airing of their specials “Markets in Turmoil”. The timing literally could not be worse:
2) Total Return is All That Matters – What a disastrous start to the year. But let’s talk about last year for just a hot second. There seems to be a widespread problem where people don’t calculate their total return. For instance, the S&P 500 finished the year 1.38% higher. Except if you don’t count dividends. In that case, it finished 0.7% lower. And for some strange reason the mainstream financial media reported that the S&P 500 finished negative on the year. Almost every mainstream media outlet ran a front page report last weekend citing the negative finish. Except it wasn’t actually negative!
Failing to report the dividends in the total return of a stock is like failing to report the interest payments of a bond. Can you imagine a 1 year CD paying 5% (boy, those were the days, huh?) where, at the end of the 1 year period, you determined that your total return was 0% because you excluded the interest payment? The exact same thing is true when you report stock returns without dividends. After all, dividends are reported as distributed profits. Why would we exclude distributed profits from the total return of a financial asset? We wouldn’t. Errr, we shouldn’t….
Anyhow, there’s lots of ways to find this data if you’re looking for it. Yahoo Finance adjusts for dividends on their historical prices page so if you’re looking for the total return of the S&P 500 just pop on over to the historical prices page on a ticker like SPY and you’ll find the dividend adjusted price updated through the year….
3) Lose Money More Efficiently in 2016! – I loved this post from Monevator, which is a very good website in case you don’t follow them. They detailed some great ways to lose money this year including:
- Sign up to some bearish investing websites
- Buy shares tipped by crazy-sounding people on social media
- Trade as much as possible
- Ignore trading costs
Perfect!
Disclosure: None.
As you can see with your graph the market is merely regressing back from the run up since the last weakness showed up. Moreover the selloff is orderly and mostly being done by big money. Thus although the news screams like there's a meltdown the correction is merely just that unless their wailing causes a read crash.
Furthermore, this downturn has little to do with China despite the medias insistence otherwise. Friday was a good example of it. The market is responding to the fundamental changes and weakness in the US economy and bad corporate profit growth given the price the US market is at. Yes the end of zirp has some effect, but corporate profitability has been getting weak and has been sustained in the market due to stock buybacks, debt issues, buying of competition, etc. These are not sustainable long term and worse yet the Fed's policy has lead to a massive drop in capital expenditure which is an investment in future growth.
The US needs to let the market correct which it didn't do adequately last time due to government and Fed intervention. Thus eventually we are doomed to repeat bad cycles until the economy is allowed to correct itself which required the normal business cycle of downturns.