Many of the conversations I’ve had recently about the stock market have revolved around the question “why” as in, “why is the NASDAQ hitting record highs in the middle of a pandemic?” “Why is Tesla up so much?”
It’s a natural human instinct to want to understand why, but the stock market is intricately complex to the millionth degree. Stock prices are based upon more information than any supercomputer can effectively quantify, so what makes us think our brains can process an accurate answer based upon the limited information we read or hear?
So here’s a question for you: “Why do you need to know?” My answer is you don’t need to know. Today’s stock price or market level has very little to do with your long term investment success. As long term investors, we shouldn’t make bets based upon what we think about current conditions or short term future outcomes. Rather, we should be more interested in maintaining healthy investing habits day after day, month after month, and year after year. If we do this, the current market conditions or even what happens between now and November have little to no bearing on our success.
It’s hard, but we must accept that we possess too little information to assess the reasons behind stock valuations and movements over the short term. You don’t believe me? Watch the pundits on CNBC get it wrong over and over and over again. When a Wall Street type or talking head provides an opinion, you should consider it to be purely marketing or entertainment, nothing more.
Don’t get me wrong, I enjoy surmising this stuff just as much as anybody. I used to put money behind some of my opinions, but I learned a long time ago that investing this way leads to little consequence and loads of frustration.
If you want long term success you must focus on good habits, not stock prices.
