It’s quite funny, really, the extent people go to to make themselves feel certain and ‘safe’ in the market environment – an environment that is characterised by uncertainty and risk.
It’s not only private traders like myself, either; this desire to create certainty extends to money managers and other well-reputed people who really should know better.
Check out this graph, presented by Bespoke Premium on their website. I don’t know if they put this together for a bit of a lark, personally I’m going to be generous and give them the benefit of the doubt*.
So the Bespoke crew have spent a chunk of their time going through the last 50 years to check the yearly returns of the biggest one-day falls during the first 35 days of trading, to compare them to what’s happened this year.
As you can see at the top of the graph, it’s looking pretty good. Over the last 50 years, every year that has started out as well as we have this year has not only ended in the black, they’ve also returned a decent wad of cash.
Woohoo! We’re home freeeeeeeeee!!
Or are we?
If you take a sneaky peak down to the bottom, you’ll find that the best yearly percentage change occurred after the second biggest one day drop (-5.28) in the first 35 days of trading. So maybe we should be disappointed, because clearly we won’t be getting a 50% change.
Really, this kind of caper is totally pointless. And here is why – every moment in the market is totally unique.
At any given moment, absolutely anything can happen. No outcome is guaranteed, nothing is certain, and no result can be predicted because the market is a faithless beast with no regard for what is ‘supposed’ to happen.
Really the only way you can create a sense of certainty is to expect everything. Expect a 50% rise, and prepare for it. Expect a 50% drop, and prepare for it. Expect nothing, and prepare for it.
Don’t close your eyes to any possibility, or you’ll be blind to the real opportunities that are actually happening, right now.
*with all respect to Bespoke, I don’t believe they are using this research to formulate investment strategies