Current events are always unique in certain ways, and therefore, unprecedented. Some investors are always tempted to conclude that the current uncharted waters mean history is no guide but the key elements of markets remain constant: they are always the product of collective decision-making by humans who tend as a group to swing between emotional extremes of fear and greed. Investors with short-term perspectives are most likely to get caught up in these emotional extremes, concluding that the market’s damage is irreparable.
You shouldn’t buy stocks now expecting that they will either rise or fall soon. The market is unpredictable in the short-term but, in the long-term, it’s quite predictable because the economy expands in the long run and stocks rise. Therefore, the rational investor keeps focused on the long-term.
The S&P 500 index fell last year and, barring exceptional gains in the fourth quarter, appears likely to end this calendar year with a loss as well. That may be a sign of better times to come because there is no precedent, outside of the Great Depression, for more than two years in a row of market losses. Current economic conditions do not compare with those of the Depression, so market gains next year would appear highly likely.
