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Saturday, June 25, 2016

Elaboration on Plans, Thoughts on News and Hysteria

In retrospect, the amount of information that was posted in the past entry was what I believe to be insufficient; I think that explicitly saying some of the concepts that I believe in and my action plan regarding the Brexit is necessary. Pardon the relative incompleteness of the last post; it was getting late and I had work to turn in the next day.

So let's get back to the subject at hand. The decision from the voting populace of the United Kingdom to leave the European Union, or the Brexit, however tacky that name may be, is making headlines and causing a large amount of worry in the markets, causing a 610 point, or 3.4%, drop in the DJIA.  In financial news websites, like Yahoo Finance for example, article headlines are riddled with the term. People are writing about how the Brexit will affect the economy, how Trump's policies will affect the Brexit, how the global markets have "tumbled", how it has affected Obama, Mexico, etc. 

At some point I was expecting these writers to talk about how their pets' livelihoods would be in jeopardy.

In an investing forum that I frequented when I first started getting into investing, there was a post with a list of suicide hotlines and their respective hotlines. Another post is titled, "Brexit is happening. Time to panic."

It really can't be denied; these people are sounding like drama queens. They have no backbone. It's not the end of the world. Take a walk. Before I posted yesterday's entry, I thought that I had over-dramatized the event, but little did I know what would happen on the internet the next day: Sensationalist articles with an undertone of hysteria.

I mentioned above that there was a 3.4% drop in the DJIA of 610 points, which came to fruition right as the opening bell rang for the trading day. Now, that may seem crazy, but one should remember that the effects of yesterday still only puts us at down merely 2% for the week and 3% for the month. Now, I am not saying that this is it, and that the market has nowhere further to drop due to this event, but now is not the time to panic. One should never panic, ever. If someone is already getting seriously scared and wetting themselves over today's drop, that speaks miles about whether or not he or she should actually be involved with the markets in the first place.

A second thing I want to touch on is that one should look at these news articles and headlines with serious scrutiny and never take the the things they say and implications they make at face value. There are multiple reasons for this.
  • Reported news is old news. By the time you are reading it, the implications that have been made (if they are based on legitimate reasoning and facts) have already been priced into the market. You are too late. You cannot win against these giant firms whose main goal is to process vast volumes of information in milliseconds and act on them in an even shorter time.
  • If there's one thing I have learned from my experience with financial news and analysis, or even just my entirety of political and academic experiences, it's that an overwhelming majority if not all issues and topics can be debated feasibly on both sides with facts to back them up. There is a virtually infinite amount of information on the internet alone. Nothing can be deemed a certainty.
  • There is also a huge conflict of interest between news corporations and the investor. The former wants views, clicks, ratings, or people to read their papers. The latter for the most part just wants to know how they will make money, how they might lose money, and if their investment is at risk. So what do the news outlets do? Sensationalism! They do not care if you act in the best interest of yourself and your portfolio, or better suited to after reading their posts and updates.
The third topic at hand is related to portfolio management.

I am a contrarian, and I especially enjoy the idea of growth at a reasonable price. Therefore, when the market goes down, when stocks have a bad day, someone with my outlook would be very ecstatic as that means stocks are cheaper. That's why I was sounding somewhat positive in the next post. Crises like 2008-2009 and 2000-2001 have always been fantastic buying opportunities in retrospect. Just wanted to clear that out of the way. This core concept has worked out for me many times before. If you would like to understand more of it, I highly recommend "The Intelligent Investor" by Ben Graham - one of the best.

I've been hearing about how people are dumping their shares, how people are looking to clear their holdings completely. They are trying to time the market. They anticipate that the market will continue to drop, and they are looking to buy back in at a lower price at some point in the future. Trying to time the market like this due to fear will never yield desirable results - it will more likely than not drag someone into the routine of buying high and selling low. It is a fool's game. No one knows what the market will look like in the future for sure. Nada. 

Now for this Brexit, I think it would be fair to say that it is pretty significant. This is a country with international exposure being planned to rewrite its relationship and stance in the global economy. But the degree to which it will impact the market can and will never be feasibly predicted accurately in advance. While following it, I strongly believed that in the end, they would vote to remain. My decision to maintain the allocation of my portfolio to my positions reflects my implied bet. But still, I don't believe that things will really get that bad with regards to the end result on this issue.

So here's my game plan. I am still holding my positions; I do not plan on selling them anytime soon. I believe in the long term prospects of my major holdings, and I would not have invested in them in the first place if I haven't. I'm not interested in trying to time the market - I'm sure I will hear stories of people who successfully will and do, but in my experience as well as conceptually I stand firm in my belief that it never works out consistently.

If things get bad, they will get better. One of the most palpable tells of if things are at their worst is if there is "blood on the streets". And honestly, I have been taken aback by the sheer amount of fear I saw online today. The F&G index dropped 24 points. 

When comparing this event to 2008, the biggest difference is that when the events began to unfold back then is that a vast majority of people were still claiming that the "economy was still strong fundamentally" and that there is "nothing to worry about". For me, today it has been the complete opposite. People left and right are saying that our world is about to end. And I've seen this pattern before; I've seen people repeat this exact same sentiment over recent events such as Greece's bailouts, the Chinese shadow-banking "crisis", and in response to various well-known pundits predicting collapse. None of their predictions came to fruition.

That's it - for what I mainly wanted to cover.

In addition, I have found out recently that a lot more of my classmates and friends than I originally thought know about this site; I'm thinking of writing a general misconceptions post for them. 

There are a lot of things they believe or think that I want to correct. 

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