Five Reasons To Hate The Stock Market

Hate the stock market

The stock market expansion that followed the financial crisis became known as the most hated bull market ever.

Despite the tremendous growth and wealth creation, the share of retail investors in the stock market has actually declined from ~65% before the financial crisis to about 55% a decade later.

Stock market investors

It makes sense.  Back in the day, it felt like the world was about to collapse.  It didn’t help that all kinds of experts were quick to jump on the doomsayer bandwagon.

It’s had to muster enthusiasm to invest when you are nursing a 50% loss in your investment account.  As a result, more and more people stayed on the sidelines – and grew ever more frustrated as the market continued its unstoppable march forward.

Long Term S&P performance

In the meantime, this happened

A decade on, the situation isn’t much different.  The recent stock market moves just make no sense.

A record number of casualties?  The market ticks up.

Highest-ever jobless claims?  Immediate spike.

Eurozone about to disintegrate?  Up we go again!

Hating On The Stock Market

There are many reasons why you might feel like the stock market is your worst enemy right now.

Perhaps you got scared and sold up over the past few weeks.  You locked in the losses and are now kicking yourself, having seen the S&P rally 17% in just seven days.

Alternatively, you may have paused your regular contributions.  It made no sense to do that when the value of your money was being decimated the moment it hit your account.  Now you are looking at buying the same thing – at a 17% premium.

Then there’s the prospect of a cash crunch.  With so much uncertainty, it’s perfectly rational to increase a solid buffer of cash in your bank account to ride out any near-term challenges.

Perhaps you have a fully funded emergency fund AND were brave enough to buy the dip – but put your money in a few individual stocks that seemed to have much more upside.  I mean, it makes no sense that AA stands still while everyone else roars ahead.

AA share price performance

Finally, you could have given your money to the professionals.  Unfortunately, despite possibly having the best intentions they are also struggling to make sense of the situation.  In addition, specific “smart money” handicaps are possibly leaving you with suboptimal returns.

Don’t Hate – Recalibrate

There’s nothing wrong about having done one or more of the things above – and feeling mighty unhappy about it.

However, instead of engaging in the highly unproductive activity of kicking yourself, you are much better off using the opportunity to recalibrate your investment strategy.

All it takes is a few simple tweaks.

First of all, don’t even go near the stock market if you haven’t got a big enough emergency fund.

You’ll have to come up with your own definition of “big enough” as it means different things for different people.  For example, my job is highly volatile, so we usually keep a year’s worth of expenses in cash.

Yes, you’ll miss out on some gains when the market goes up.  You’ll also avoid a fire sale when it goes down – and improve the quality of your sleep along the way.

Secondly, please don’t try to time the stock market.  Even though it’s highly rational in the long term, it’s anything but that on a day-to-day basis.  Always has been, always will be.  The sooner you accept it, the wealthier you will become.

Finally, don’t try to beat it.  There may be some exceptions but leaving those aside, it’s a losing strategy.

Remember: in the stock markets, average ≠ bad.  Average is actually pretty damn good – because you outperform the vast majority of actively managed funds.

When it comes to building wealth, the stock market is one of the best allies you could ask for.  So give the things above a shot and who knows – you may well fall in love with it again.

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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5 thoughts on “Five Reasons To Hate The Stock Market”

  1. Yes to the emergency fund. I only had a 3-month one prior to this crisis. I always figured that, as I‘m self employed in two different sectors, it‘s almost impossible for me to lose all clients at once. As soon as the crisis came, I got scared because all of a sudden, I faced losing 90% of my work. So, I increased it to 6 months, which felt better. This crisis is a great way to iron out any such issues in your financial plan and test whether you’re comfortable with your strategy.

    Now many of my clients have come back virtually and it looks like I might not need the emergency fund after all – fingers crossed! Still, it‘s good to have it.

    1. Banker On FIRE

      Indeed! It’s a similar issue with people who diversified into real estate – only to have their rent payments at risk in the current environment.

      I think virtual classes are great – my gym has been putting them on and even my three-year-old does some virtual baby yoga these days 🙂 Could well be a trend that persists beyond Covid if you ask me.

      1. I‘ve heard of people losing rental payments already. It‘ll be a big issue. And the renters who are already in trouble now, one month into the crisis, probably won‘t be able to pay the missing rent after the crisis, either.

        Definitely. My studio owner is already thinking of doing 2 virtual days a week. I‘d love to do that permanently.

  2. Anybody who missed CoVid-19 coming AND the REPO crisis shouldn’t be an investor. If somebody is leveraged beyond the ability to survive a couple months without income it is time to make space for more serious players and clean this unsustainable debt-driven market up. My 5 cents.

    1. Banker On FIRE

      I suspect the vast majority of individual real estate investors out there wouldn’t last three months if their tenants start withholding rent. Sub 4% cap rates and a reliance on price growth to deliver the returns don’t leave much margin for error.

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