A Common Sense View for Investing in Stocks

Henry David Thoreau is credited as saying, “Things do not change; we change”.  This is especially important when trying to take an objective look at the financial markets.  Recognizing that the markets and financial analysis don’t necessarily change, but our justifications and rationales can and do, is a big step in the right direction of objective analysis.  The last few weeks I have examined the markets using our four pronged approach to help facilitate an unbiased perspective.  Fundamentals, technicals, and sentiment are all important, but sometimes a little common sense goes a long way. A Little Common Sense Thomas Paine, in his famous book Common Sense wrote, “A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom.  But the tumult soon subsides.  Time makes more converts than reason.”  Today, we have a simpler term for this type of thinking, recency bias. The market (QQQ) has now rallied for four years.  Following Paine’s script, if we were to ignore any history, then investing now might make sense as the market’s four year rally has indeed created a superficial appearance that buying into this rally works.  The “Fear of Missing Out” as we discussed in our most recent Newsletter speaks to just that.  But we as well Thomas Paine know that just because something is in place for awhile doesn’t necessarily make it right or certain it will continue into the future, and that is all you should care about if you are putting new money to work today.  Wall Street in its usual role is the formidable outcry in justifying a rising market begets a rising market (VTI), but the tumult may soon subside, just as it did in 2000 and again in 2007