For anyone who has read the book Liar’s Poker by Michael Lewis you will recognize this passage quoting a poetic muse called Memoirs of a Trader written by a man who made a living in the equities department of Solomon Brothers in the 1980s. In it, the trader describes the hopes and experiences that ride on the rise and fall of the stock market:
The market, he had learned, was like the sea, to be respected and feared. You sail on its smooth surface on a placid mid-summer day; you were borne along by a favoring breeze; took a pleasant swim in its waters, and basked in the rays of the sun. Or you lolled in quiet currents and dozed. A cold gust of wind brought you to, sharply – clouds gathered, the sun had gone – there were flashes of lightning and peals of thunder; the ocean was whipped into seething waves; your fragile craft was tossed about by heavy seas that broke over its sides. Half the crew was swept overboard…you were washed upon the shore…naked and exhausted you sank upon the beach, thankful for life itself…
This doesn’t sound at first like an optimistic enough quote to put in a Less Worry | More Happy blog, but I’d argue that it does prove the reason to maintain a positive outlook. First of all, this wasn’t written in 2008 or 2011, but in the early 1980s. It could also have been written in the early 1990s, or the early-mid 1970s, or 1987, or the early 2000s. The point is, we’ve seen many moments where we feel like the sky is falling and that all of our savings held in the stock market have vanished forever. But we’re still here and in order to have momentous crashes we must also by definition have to have moments of high points from which to drop. The bears need the bulls and vice versa.
This up and down nature of the market is inherent and nearly a law. We may not like the big downturns but we accept them and the risks associated in order to feel like our savings will grow over a long period of time at a rate better than other alternatives. If we failed to have that hope in the long term success of the market then we’d be doing something else with our money.
A diversified and customized portfolio that incorporates our objectives and our risk tolerance, combined with our understanding that markets are not guaranteed except for the guarantee that returns and prices are in constant flux is still, for most people, a place to be. We may feel that the reasons for recent ups and downs are different this time. We may feel that the time spent in a “down” is longer than normal this time. And we may feel that the prospect for a long-lasting “up” is too far into the future to see. But we believe that we’ve chosen wisely and that hourly movements of the market that have happened inside this last two-week time frame doesn’t speak for our faith in the long-term viability of where we have placed our savings.
