1+1≠11

And other bits of common sense.

The following is a sequence of my Tweets from last night and into this morning;

The sequence actually reads bottom to top.

There was a lot of chatter last night on Twitter about the drop in S&P 500 futures (Spuz) portending some sort of serious market event for today. I saw this on many fronts. Rarely is overnight trading a reliable indicator in the context that people were Tweeting about. The best of example of this might be from the night that Donald Trump won the presidential election. When it was looking like he was going to win by late Tuesday night, the futures cratered, the Dow futures were down 1000 points for a little while. Regular way trading the day after the election saw the Dow go up about 250 points.

The reaction I was seeing last night, anecdotally I realize, seemed out of sync with the news. Obviously I could have been wrong but the bigger idea here to not get carried away with short term thinking. If you could describe the objective of your financial plan in one or two sentences (you should be able to do this), how would it be impacted by some random 1000 point drop in the Dow? You don't have have to guess, we've had at least three of those in the last ten years, one in the fall of 2008, the Flash Crash in May 2010 and the other Flash Crash in August 2015. Do you even remember all three of them? If there's more than three I don't remember them. And of course, as we sit here today perhaps on the precipice of the next bear market, the indexes are all much higher than they were during those other crashes.

Whatever your strategy is, just stick to it. You chose your strategy because you believed it best for you. There are many valid ways to get it done and at the end of the day they will get it done even if there is emotional difficulty along the way. If the crash that people were worried about on Sunday night comes tomorrow or some other day soon then that will be difficult but not something you haven't seen before.

And to my reply to Ramp Capital, this is a point I have made before. The stock market is pretty high right now which means your account value is pretty high, not all time high but pretty high. If you are so scared that you doubt the market's ability to come back, then you should sell now and walk away from the equity market. Better to do that now than after the next large decline when you're even more scared. To be crystal clear, I have unyielding faith that nothing is broken or different. Whenever the next bear comes (I think it already started but it doesn't matter whether I am right about that), the stock market will go down a lot, scare a lot of people into thinking it's different, then it will stop going down and eventually make a new high. The only variable is how long that all takes.

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