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Why These ‘Streaks’ Are Entertainment, Not Investment Advice

As market movements are turned into entertainment, complete with scorecards and so-called “expert” analysts making predictions, the big winners are brokerage firms and stock brokers who rack up transaction fees and commissions when clients panic and hit the sell button.

Markets have snapped their winning streak.

From the breathless headlines, you would think the financial journalists are confused, and believe they are actually sports reporters.

Sadly, as market movements are turned into entertainment, complete with scorecards and so-called “expert” analysts making predictions, the big winners are brokerage firms and stock brokers who rack up transaction fees and commissions when clients panic and hit the sell button.

The brokerage industry’s willing accomplices in the financial media also gain by garnering eyeballs and clicks by running hysterical headlines suggesting Armageddon is nigh.

Now, if you’re a sports fan, maybe you like tracking your team’s winning streaks. The 1971-1972 Los Angeles Lakers didn’t look too shabby in that regard, emerging victorious 33 times in a row, still an NBA record. The University of Connecticut women’s basketball team is also pretty amazing, notching 107 wins, as of March 20, 2017.

But what are you supposed to do with that information? If you play Trivial Pursuit, it might come in handy. Likewise if you are one of those people who enjoys spouting data at parties or bars, sports winning streaks offer plenty of fodder.

Maybe you track current win streaks as a way of betting at the sports book. For a particularly skilled team, such as the UConn women, there’s some logic to that.

But you can’t extrapolate that logic to making a bet on the market because of some ginned-up “win streak.” For example, the streak being touted this month is the Dow’s 109-day streak without a decline of 1% or more.

Sounds important doesn’t it?

But let’s put on our critical thinking hats for a minute. I can wait while you look around for it – most Americans seem to have misplaced those hats, or maybe were never issued one at birth.

OK, now that you found your critical thinking hat, let’s examine the idea of the Dow Industrial Average and its so-called “win streak.” It’s a ridiculous and meaningless concept for several reasons.

  • Emphasis on “home bias.” Articles touting the performance of U.S. markets typically lack the broader, global context. Most American investors – and, of course, the U.S. media – have a myopic focus on domestic markets. True, the U.S. accounts for about half of world market cap, but that means there are all manner of other asset classes investors should have exposure to. As CNBC’s Jim Cramer says, “There’s always a bull market somewhere.” I don’t subscribe to Cramer’s focus on single stocks, but his assessment in this case is spot on. The overwhelming majority of the time, if the Dow is trading lower, some other global equity or fixed-income asset class will be performing well.
  • A market win streak has nothing to do with your financial well being. I know, some of you are snickering and thinking, “Yes it does! I like markets that are winning!” But how does one day’s market action, in one 30-stock index, help or hurt your financial plan? So the Dow sheds 1.14% in a session, as it did on March 20. Does that mean you can’t retire? If so, I have to be blunt: You’ve done a horrible job of financial planning. Now, I’m saying this tongue-in-cheek. I don’t think there’s a person alive whose retirement is at risk because of one day’s performance of the Dow.
  • If it doesn’t materially affect anybody, what are you supposed to do with this information? Sell everything you own in a panic-stricken frenzy? Change your financial plan to push back your retirement by five years? The articles suggest, at least tacitly, that you should take action based on what the Dow or S&P 500 or Facebook or Apple or Snapchat happens to be doing on a given day. But one data point does not make a trend. Keep that in mind when you see stories like that.
  • Stories like these generate clicks, but no actionable information. Look, I fully understand that publications rely on clicks to generate advertising revenue. I worked in the financial media long enough to understand the ongoing need for compelling, provocative content. After all, endless articles admonishing people to stop trading would get pretty boring – even if it’s excellent financial advice.

Investing is not a game. I like to show our clients a quote from Paul Samuelson, the first American to win a Nobel Prize in Economics. He said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

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