Weekend reading: A boom in crash talk

Good reads from around the Web.

There is always lots of commentary when the stock market falls fast, but this week it seemed unending.

Given how rarely big declines have happened in recent years, I guess the excitement was not a surprise.

Pundits finally got another chance to express their worldly wisdom about plunging share prices.

• Traders like nothing more than volatile markets when talking about trading, as well as when actually doing it.

• Bears have waited a long time to say “I told you so”.

• Bulls had fun pointing out that being bullish has been right for many years.

• Legions of Warren Buffett disciples and buy-and-hold passive investors have been itching to show off their long-term thinking skillz.

I certainly wasn’t too precious to miss the chance, either.

My thoughts on how to face a stock market slump went up earlier this week.

Most of us kept calm and carried on

Actually, amid all the noise there was a lot of sensible stuff being said, at least on the Internet (and in the Monevator comments).

Perhaps it’s the people I read – largely investors, not journalists – but I came across much less of the hysteria that you tend to read in the newspapers.

My single favourite contribution was from US investor and Motley Fool co-founder David Gardner, in an excellent podcast that offered his rules of thumb on coping with stock market volatility.

I love Gardner’s thoughts on investing and I admire his active investing style, which focuses on expensive growth stocks. He has an interesting and internally coherent philosophy.

Obviously it’s also far off-base from the passive investing path I’d strongly suggest most people follow with most or all of their money.

But even passive purists will find this soothing podcast worth listening to.

Here’s an extract (and for context he’s talking about the US market):

The market always goes down faster than it goes up, but the market always goes up more than it goes down.

Those are opposed ideas.

Let’s start with the second part of that line. The market always goes up more than it goes down.

Well, that’s pretty obvious. Anytime you have something that’s gaining 9-10% per year over a century, you can expect that’s going to go up and, indeed, the market is doing not much more than reflecting the growth of innovation, technology, and wealth worldwide over the course of the last century.

And that’s why I have great confidence in the market over the next century, because we will all continue to grow and to prosper together.

Great businesses will come along. More great entrepreneurs will start things you and I can’t dream of and add value to the world. And that’s what’s happening with the stock market.

The market always goes up, of course, over time more than it goes down.

But what’s the first part of the line that I just delivered to you?

The market always goes down faster than it goes up.

And that’s really important to keep in mind — both of those thoughts — especially during a week like this one.

I can’t think of any time in my investment career when on three consecutive days my stock portfolio rose 4%. That just doesn’t happen.

You might have one great day here or there.

But the idea that over the course of three days somebody would gain 10-15% of their net worth thanks to just market gyrations — I’ve never seen that happen.

And yet, it just happened on the downside.

I’ve also never seen a stock market in one day gain 20 percentage points or more, but yet that did happen in 1987 on the downside.

The market always goes down faster than it goes up.

You can have fun picking apart the word “always” in the comments if you like, but I’d rather focus on the main point than on outlying periods and places dug up from the history books.

I think you’ll find that’s a much more profitable way to think in the long-term than lurking around bearish sites and forever fearing the next Japan.

Still, horses for courses.

Here’s a handy collection of crash articles – enabling you to devour or dodge them as you see fit – followed by the rest of the week’s good reads.

Stock market slump special

General context

• It really WAS a really big sell-off, in the US – Bloomberg
• Although the six-year bull run before it was at least as odd – AARP
• Some thoughts on why this particular crash happened – Slate
• Evidence of the panic: Record outflows – Yahoo Finance
• More on the weird Monday open I mentioned – Bloomberg View
• Some high-profile hedge funds have lost all their gains – Bloomberg
• But a slump is good news for most investors – UK Value Investor
• US stocks now undervalued – Morningstar [via Abnormal Returns]

Active investing

• How to profit (in two ways) from the volatility – The Reformed Broker
• Surviving the market mayhem – Musings on Markets
• Another guide [with bonus ‘worried trader’ photos] – ThisIsMoney
• CAPE did not predict the crash – The Irrelevant Investor
• One Japanese day trader made $34 million in the panic – Bloomberg
• The art of catching a falling knife – Investing Caffeine

Passive investing

• What should you do when the market falls? – Vanguard
• More on coping with a market correction – Oblivious Investor
• Don’t kid yourself: You can’t time the market – Bloomberg
• Switching on auto-pilot in the face of a crash – Keeper of the Cauldron
• Is a pullback really a buying opportunity? – Canadian Couch Potato

The US ETF ‘flash crash’ in focus

• Monday’s ETF ‘flash crash’ in the US – A Wealth of Common Sense
• Another theory on this ETF ‘flash crash’ – MarketWatch
• Yet more on this putative mini-failure of the plumbing – ETF.com
• Low volatility funds can fail you when you need them – Value Perpective
• Computers are the new dumb money – The Reformed Broker

From the blogs

Making good use of the things that we find…

Passive investing

• How messy fund managers create an illusion of skill – Rick Ferri

Active investing

• A very deep dive into energy stocks – Joshua Kennon
• A dozen things learned from Charlie Munger – 25iq
• Beware of the ‘big market’ delusion – Musings on Markets

Other articles

• How to make £1,500 in an hour via a SIPP – The FIREStarter
• Diversifying a peer-to-peer lending portfolio – Quietly Saving
• Unrelenting, or just obsessive? – Retirement Investing Today
• Your emergency fund should be boring – Your Richest Life
• BTL landlords discover the real world – Simple Living in Suffolk

Product of the week: Savers rejoice! You can now get much more than 2% on a one-year fixed rate savings account. You can get 2.1%, in fact, from Kent Reliance – up from the previous 2.02% it paid. That makes it a Best Buy, according to The Telegraph.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

• The passive bond funds outperforming their active rivals – FT Trustnet

Active investing

• (Japan) fund manager never been more bullish about Japan – Telegraph

Other stuff worth reading

• Women in 20s earn more than men – Guardian
• Solar panel returns to fall nearly 90% from January – ThisIsMoney
• House prices have made the word ‘millionaire’ meaningless – Guardian
• The UK towns that the property recovery hasn’t reached – Guardian
• Chart that tells a story: The rush to remortgage [Search result] – FT
• The coddling of the American mind – The Atlantic

Book of the week: Are you worried about the coming A.I. revolution? Me too, but one person’s future dystopia is another person’s publishing opportunity. In Humans Are Underrated, Nicholas Brealey argues that there is much we can do that Joe Robot will never manage. (Writing books is surely near the top of that list?)

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1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]