Gambling in the stock market is exciting. Very much like the lottery, you often hear about the people who have won big but rarely about those who have lost. It is interesting to me that all of the education revolving around investing is either rules based or it is teaching us to gamble.
The stock market game was started in order to get young people interested in investing. It pits middle school through high school students against each other and classes get a sum of imaginary money that they get to invest for a very short period of time, usually one semester or less. The winner is the class that makes the most money. There really is no way to win other than rolling the dice and taking enormous risk.
Some universities qualify for a program where real money from a large foundation is invested by the class for a year. All of these programs see a reward for making money in a very short period of time. It is interesting that the Securities and Exchange Commission and FINRA, the two governing bodies of the investing industry, both consider stock investing to be very risky in a time frame of less than three to five years. Therefore, advisers may have to defend their actions or have the client sign off on their actions if they meet that criteria.
I was reading an article today from Advisors Perspective entitled, “All the Ways Wall Street’s Telling Clients to Trade the Election.” There seems to be little agreement between the experts. If Biden wins, some say that his proposed tax hikes could hurt investments. Others say his stimulus plan will boost investments. Goldman Sachs has hedged its bets by giving two scenarios for a Biden win. One is if investors focus on the proposed tax hike. The other is if investors focus on the stimulus package. They have Biden with a stimulus focus pushing the S&P 500 up 4.5%. They have Biden with a tax focus pushing it down 3.9%. A Trump win pushes the S&P 500 up 2.4% and a contested election pushes it down 10%. So, there you go. Pick your poison and good luck.
I chose to spend my investment career in the more boring world of spreading your investments around so one investment can’t derail your plan. I don’t try to time the markets because I haven’t seen anyone do that successfully over a long period of time. I have seen some people do it quite well once or twice. That is not enough for me. I try to let the market trends work in my favor.
The equity markets, for a long time, have averaged positive returns around 70% of the time. Being invested for long periods allows you to take advantage of that trend. Timing the markets can keep you out during a lot of up market days.
I am not saying that you should never have fun investing. I would encourage you to take a flier every now and then. If not for anything else but to remember why you didn’t do that with all of your money. But set aside money for those fliers and keep your serious money invested in a well thought out plan. There is a lot I could say about the upcoming election, but one thing I won’t say is, “Bet your investments on the outcome.”
And if you start feeling frisky and can’t help yourself, just remember the Gambler’s Prayer: “Oh Lord, let me break even; I need the money!”
Be careful out there, respect other people and wear a mask so we can get back to normal faster.