Stop Trying To Making Sense of Markets & News: Transcript Episode 436

by | Mar 31, 2023 | Blog

Stop Trying To Making Sense of Markets & News

Transcript for Podcast Episode 436

Casey:  Hello and welcome back to the Mullooly Asset Podcast.  This is episode 436. I’m your host, Casey Mullooly, joined by Tom. Tom, thanks for joining me again.

Tom:  You bet. Actually, I could probably sum up the entire podcast in this phrase “buy the rumor, sell the news.”

Casey:  Yeah. We’re gonna talk about how investing doesn’t actually make sense and how counterintuitively it makes more sense when you try to stop making sense of it all.

Tom:  So, right before we turn the mic on to record, Casey was sharing with me what happens on the day that Apple releases their earnings, or comes out with a new iPhone. You want to share with everybody?

stop trying to make sense of markets TranscriptCasey:  It’s stock price “has to go way up!” It’s gotta…!”   Wrong!

Tom:  “Apple is coming out with their greatest earnings report ever…,” or “…their newest, hottest product.”

Casey:  Yeah, it doesn’t work out that way. Stock price is actually down on the day of their new iPhone announcements. They do these big shows out at their headquarters. And everyone is in awe about the new camera or how much more battery life it has. But investors are actually doing the opposite of that.

Tom:  Yeah. “I’m selling because the stock didn’t have 97 pixels or whatever. Uh, the camera didn’t have, uh, you get the point.”

Casey:  Yeah. But it’s this idea that people think they know how the stock is going to go. Or how the market overall is going to react based on scenarios. So “IF this happens, the stock price is gonna do THAT.”

Tom:  Right.

Casey:  And we have multiple examples of the Apple example being one of, of how that’s not the case. I remember I did a video back in the summer of 2021 talking about Zillow. And how Zillow was one of these covid stocks where it shot up. I think.

Tom:  Everybody wants to get out of the city. That’s what they were talking about. Like, “…everyone’s gonna buy a home.”

Casey:  So its stock price ran up quicker than it probably should have. And then home prices were also up big. In the summer of 2021 when home prices were going up…probably the fastest; Zillow’s stock price was down. It was off at the time of the video, like 75% from all time highs.

Tom:  Still a good company.

Casey:  Yeah. You’d think, I mean, everyone talks about it. Everyone was going on Zillow using it to see what their home price was valued at, what their “zestimate” was. You think that would be good for its stock price and it was the exact opposite.

Tom:  Of course, none of these companies are recommendations to buy or sell. I need to say that.

Casey:  Yep. That’s important thing to mention in our podcasts.

Tom:  We’re just using these as anecdotes to share with you the same underlying concept of “buy the rumor, sell the news.”

Casey:  So we were inspired to talk about this topic by a Morningstar article, written by Jeff Ptak. And the example that he used was the Russian invasion of Ukraine, which took place over a year ago at this point. This was February of 2022. You would think that Russia invading Ukraine would have a big impact on the price of oil. And it did — for a couple of weeks. Before the invasion, the price of oil was $94 a barrel. A few weeks later, it hit $130 a barrel. But by summer it was below its pre-invasion price.

Tom:  And today we’re recording this a year later, the war is still raging. Oil is trading at $69 a barrel.

Casey:  Yeah. Didn’t go how you probably thought that it would.

Tom:  They blew up the Nord Stream two pipeline! And oil has actually gone down since that happened. You’re cutting off the oil supply to most of Europe. How could oil not go up? It doesn’t make sense. And that’s the point of this whole article. We’ll link to it in the show notes.

Casey:  Yep. Of course. What are investors to do if it doesn’t make sense? One of, and I’m going to answer my own question here, and that is, I think first of all, not try and predict. And I think we need to talk about “traders” versus “investors” here because I think traders are more the ones who try and trade these sort of events — and trade these news and earnings releases. And, traders basically just try and identify patterns in the market. And then trade based off that. But investors shouldn’t really be swinging their retirement accounts around based on what’s happening in Russia and Ukraine, for example, or what’s happening with Apple’s latest quarterly earnings.

Tom:  Or what the futures are doing overnight.

Casey:  Right. We talked about it pretty much every week during Covid. It’s the same idea. You can know what the news is going to be ahead of time, but you still don’t know how the market is going to react.

Tom:  That’s so true. I just wanna slow down and repeat that again. You can know what is going to happen in the future, but you don’t know how the market is going to react to the news. That’s so important. We could have the answers to the test or we could have tomorrow’s newspaper. We still don’t know what the market is going to have to say about it.

Casey:  We talked a lot last year, how the market is forward looking. And a lot of, you know, the story last year and, and still to a large extent this year, the story is “recession.” And how everyone was calling for a recession last year. Um, and a lot of people still are (expecting a recession) at this point now, in the first quarter of 2023.

The market, it’s kind of a running joke at this point, or not a joke… But you hear about how things are “priced in” already. What we mean by that is the market moves in anticipation of things that it thinks will happen. The market is a collection of individuals and institutions. And the market kind of does have “a mind of its own.” And people move and set themselves up anticipating things to happen. And a lot of the time that anticipation of events is worse than the actual event themselves. I’m thinking about recessions in this case. Just broadly speaking. Uh, who is it… Peter Lynch? who said that, more money was lost preparing for events…

Tom:  …that never happened!

Casey:  … than in the actual events themselves!

Tom:  I also know that very famous saying that Joseph Kennedy (the father of the Kennedy clan) said, “when the shoeshine boys on Wall Street are giving me stock tips, I know it’s time to get out.” Again, it goes back to that “buy the rumor, sell the news” events.

There are no stock market gnomes, or trolls, out there saying “this is going to happen” or “that’s going to happen.” So we just see the reaction in the stocks. And I think that is what makes a lot of these folks that get on the financial media… I think this is what makes them crazy! But it also kind of keeps them employed too.

The folks you see showing up on Bloomberg or CNBC, they live in a world of, “IF this, then THAT.”

(For example) If the Fed raises interest rates too many times, (then) we’re going into a recession.
No. What the reality is, “IF this happens, THEN the goalposts are going to move.

Or if this happens, then the rules are going to change. If too many things go wrong…in 2008, well the government is going to come in and do a huge bailout. They are even going to bail out the auto industry.

So “if this…” doesn’t necessarily mean, “…then that.” And THAT is where a lot of people just get blown out of the water. Because they say, “wait, the Fed raised interest rates, or, the economy slowed down. We should be in a recession. (Therefore) stocks should be off by X amount of dollars. And it didn’t happen. What do you do? And this is really what we’re getting at. What what should you do?

Casey:  Well, not watch CNBC. If you do, know that it’s for entertainment. I think if you watch it for, to keep up with news and not necessarily get investing tips…or, action items for your portfolio. Then if you’re able to watch it for purely entertainment purposes, then I think it’s pretty entertaining television.

But if you’re using it to guide your investing decisions, then I think you’re going to have a problem. And you should probably talk to (someone).

Tom:  …talk to (or) get professional help.

Casey:  Yeah. Other than that…

Tom:  I think the main thing is stay invested. You know just stay invested. It’s the, the market — and I’m not saying just what happens on the floor of the New York Stock Exchange or the Nasdaq — the market, as an environment will do everything… (it’s) like the devil. It will do everything in its power to make you do the wrong thing. And the right thing is to continue to save money, continue to dollar cost average, continue to stay invested — despite the news.

We made a video earlier, and we’ll link to it in the show notes, where every single year I have been in the business, something bad has come along – that was completely unexpected. And during those years, the Dow Jones went from 1400 to, where are we now? 32,000. Stay invested.

Casey:  Stocks climb the wall of worry. So, just to put some numbers behind this. What you were just talking about, Jeff Ptak (in the Morningstar article we mentioned earlier), he looked at US Large Cap stock returns – in the 36 months that followed a 3-year period in which they lost money. So that was kind of a confusing description there. But basically he looked at “how do large cap US stocks perform – after they go through a prolonged stretch of losing money?”

Tom: There’s not that many times.

Casey:  There’s only 19 times that US Large Cap stocks suffered two consecutive losing 36 month periods. And those were centered around the Great Depression, the financial crisis of 2008, and the bursting of the internet bubble. But on average, after those events took place, stocks rose by 22%.

Tom: Pretty good bounceback.

Casey:  Yeah. And in all of those periods, not just the Depression, 2008 and the 2000 internet bubble… in all of these time periods, stocks rebounded, earning 14.2% per year on average in the three years following a losing 36 month period.

Kind of a long and confusing way to say that stocks tend to perform well after they don’t perform well. So if you’re trying to… Usually investor sentiment follows how the market is performing. So my guess is, at those time periods where stocks were performing the worst, investors were as bearish as it gets — probably were looking to move to cash, or move to more conservative accounts, at precisely the wrong time.

And that is another theme that we like to drive home here, is you will most likely be tempted to do the worst possible thing (which is sell out at the bottom), and then you’re going to have to figure out when to get back in. And that just creates a whole host of different problems. So the easier thing to do would probably be to have the appropriate allocation between stocks, bonds, and cash going in. And just make sure you maintain that throughout all of these time periods.

Uh, quick podcast here for episode 436… but an important lesson. And always a timely topic to talk about. So Tom, thanks for joining me. And thank you, our listeners, for tuning in to this week’s episode. We’ll be back with you next week.

Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions in securities discussed in this podcast.

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