A version of this article was originally published on TKer.co.
History tells us the stock market usually goes up regardless of which party occupies the White House. It also shows that the market usually quickly looks past geopolitical shocks like the start of a war. Similarly, the market has always adjusted to economic turmoil sparked by the emergence of paradigm-shifting technologies.
As a result, it's somewhat popular to say that people should ignore jarring headlines in the context of their investment portfolios.
On that matter, here's what Joe Weisenthal asked me on Bloomberg's Odd Lots podcast during a panel discussion about the AI's threat to the economy as we know it:
Per the theme of your Substack — generally speaking, stocks go up — is the sub-theme to just ignore everyone else on the stage? Because you're just going to get distracted, and you're going to get freaked out, and whatever. …Ignore all the Odd Lots episodes, ignore all the news, ignore the doomers. Because in the end, the only thing that can happen if you pay attention to the news is you do something stupid. Then you missed the long run.
His question cuts to advice that some investors have found helpful. The "bury your head in the sand" playbook can be the right one for those without the intestinal fortitude to hold on to their investments when sh*t hits the fan. Forget your retirement account passwords and ignore the news, and in a couple of years, you'll hopefully have made progress toward your financial goals.
But for most people, I think this approach is a mistake. Here's how I answered Joe's question (edited for clarity, emphasis added):
I'm actually the complete opposite of that. Like I said before, I'm always worried. And this is sort of the message I try to communicate out to the world. I do a lot of things that are kind of counterintuitive. Like, I do check my 401(k) plan every single day. A lot of advisors and professionals will go on TV and say to forget your 401(k) password, or ignore politics, or ignore what's going on in Iran. We have a long history of getting past all this stuff.
I think that's all incredibly silly. I think you really do have to think about how bad things are at a given time. That way, you build up those memories so that, 10 years from now, when there is another war, you will remember how bad things were in the past. And you'll know how markets evolved out of all that stuff.
To ignore things makes you more vulnerable to making mistakes. So yeah, be really conscious where there are [AI-related] job losses, and where there will be industries that fall apart. Because all the lessons you learn today from all the bad things that happen — when you lose your job, and when your neighbors lose their job — and then a couple years from now, maybe the market's higher. You know, 10 years from now, it's going to happen all over again, and you're more robust when that stuff happens. So, I think it's a complete mistake to ignore terrible things that are going on — as someone who's optimistic in the long run.
Ignoring or forgetting unpleasant events might come with mental health benefits in the short run.
But in the long run, I think it does more harm than good. Because it could mean putting off a valuable lesson, which could have better prepared you for a similar event in the future.
Keep your thoughts organized
Having a thorough bank of detailed memories, especially the bad ones, helps to better contextualize events causing anxiety today.
You may be thrown off if you don't remember the last time the media fed you live shots of an escalating war, gave increased airtime to the doom mongers, or sent you frequent push alerts about 1,000-point drops in the Dow. Because when events are new to you, you'll rightfully feel uncertain because in your mind, there's no precedent for what comes next.
Consider this passage from the final post I wrote for Business Insider, back in February 2016, which I've repeated for TKer subscribers before:
Every major sell-off in history has been accompanied by a mix of economic concerns, monetary policy shifts, geopolitical tensions, or some other source of consternation that might make a rational person demand a higher premium for putting their capital at risk. The details are different each time. But structurally, it's generally the same story: it's risky out there. Amid all this, one pattern has stood the test of time: stocks will go down a lot, but then they'll go up a lot more.
Sounds familiar, right?
Now, this may sound callous — and I'm speaking strictly from the perspective of investing — but the goal is to become a little less sensitive to bad news that you've seen before.
To be clear, this doesn't mean not caring about serious issues. We are human, and bad news affects us and the people we love. In the context of politics and social issues, I think people should certainly be engaged and express their concerns and views. This is another reason why I think people shouldn't ignore what's going on in the world.
But in the context of investing, you wanna be like that wise grandparent who's seen a lot and can match or one-up you every time you mention something difficult going on in your life. Not only are they often sanguine when others are panicking, but they're also better equipped to identify those moments where things might actually be different this time.
The challenge is organizing your thoughts so you can be mindful of the world around you while thinking as objectively as possible about your finances, minimizing the risk of making emotionally driven mistakes.
The past is often worse than you remember
For me, it's not enough to be present in the moment. I spend a lot of time looking back at past crises and market crashes. I have lots of old notes and printouts I thumb through. I'm always eager to read research and reflections from others. I sometimes write about it too (see here, here, and here).
For the events I lived through, I'm always struck by how much more intense and unnerving those events were than I can readily recall, which is why I keep thinking back on those moments. To be clear, I also have lots of great memories from good times that I reflect on. But I believe it makes me more thoughtful to remember that the past wasn't always perfect.
Because it feels like every couple of days, I read a news headline or get an alert on my phone that has me thinking: Are we on the cusp of a major market downturn?
To be fair, we always might be.
But usually, we aren't.
Upon deeper reflection, we often learn that the day's risk event rattling markets is often similar to the run-of-the-mill, short-term bouts of volatility we experience rather frequently.
All this is to say is that as unnerving as things are today, there were likely more unnerving periods in recent history.
Bruises, bike accidents, and broken bones 🤕
Growing up, I had my fair share of accidents.
I've received second-degree burns from fireworks. I once got the wind knocked out after jumping off a swing a little too high. I almost drowned while playing in a pool before I knew how to swim. In 7th grade at lunchtime, I choked on hamburger meat. Another time, I choked on a big ice cube. I tore up my knee after I flew over the handlebars while riding a road bike on a rocky trail. I've been knocked unconscious at judo practice, and I've had my wrist fractured at a judo tournament. I've even had my heart broken a couple of times.
These were unhappy experiences. But they were also valuable experiences. They've increased my threshold for emotional and physical pain. Importantly, they've made me more thoughtful about decisions I've made ever since.
I only wonder how I'd behave today if I didn't have those experiences, or if I had forgotten about them or buried them away. I'd probably be at risk of much more danger than I am now.
To be clear, the memory of all these accidents won't guarantee that I won't make some choice in the future that leads to disaster. But at least I'll be better informed and more thoughtful about my decisions.
A version of this article was originally published on TKer.co.