How quickly things change in the world of the stock market!
Little more than a month ago, I penned a Motley Fool article describing how the FTSE 100 (FTSEINDICES: ^FTSE) had hit a new 12-year high, closing at 6,755 on 20 May, washing away the fears of terrifying fiscal cliffs and eurozone debt crises.
I asked whether investors should heed the advice of legendary investor Warren Buffett, and “be fearful when others are greedy and greedy when others are fearful”. But I concluded that investors could still find great businesses to invest in, even as the market hit new highs.
Naturally, I had no idea that the FTSE would quickly drop by 11%, or that it would rebound so quickly (after reaching 6,840 two days later, it subsequently crashed to a low of 6,029 on 24 June before climbing again to close at 6,450 today). Did I feel red-faced? Do I now feel vindicated?
Not at all! With no clue about the sharp sell-off about to occur, and no idea of the swift rebound that would follow, I said:
“Here at the Motley Fool, we try to avoid predicting what the stock market is going to do next. We prefer to focus on the underlying business of the companies we invest in. We view the price and value of each business individually, and we tend to invest without worrying about short-term price movements.”
I think the wild swings in the market in the last couple of weeks, both up then down, show how valuable it can be for an investor to admit “I don’t know what the stock market is going to do next”. By avoiding such guesswork, imagine the lost money and stress that un-Foolish investors could have avoided, perhaps selling their shares in panic?
I still don’t know what the FTSE 100 will do this week, next week, or next month. And I sleep well at night knowing that I’ll forever be useless in the art of consistently predicting random stock market movements.
Instead, as the market sold off and then rallied, all I felt was the confidence that the value of my shares were worth roughly the same as they were before. After all, while the stock market fluctuated rapidly, had much really changed to alter the intrinsic value of the market’s underlying businesses?
I’m happy to reiterate that as the FTSE 100 rises and falls, there are still great opportunities for the long-term investor to take advantage of today.
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> Mark owns no shares mentioned in this article.
