Recent Bluestone Memos
Subscribe to get the latest memos from Bluestone.
Know this and you’ll know more than most: in the short-term the stock market is a manifestation of public sentiment. In the long-term stock markets are driven up by corporate earnings, but in the short-term they are driven up and down by investors’ emotions.
What’s more, at the point of extreme emotions stock markets move in the opposite direction of those emotions. That means when investors feel euphoric markets go down, and when investors feel despondent markets go up. Counter-intuitive isn’t it.
There’s a lot to be gleaned from the above illustration. It sheds a lot of helpful light.
Now, with this understanding, ask yourself these questions. Where are we today? At the top or the bottom? What is public sentiment like today? Are markets going to go up or down?
No one can answer these questions with precision because investor emotions are too fickle. Let’s give it a try anyway: investors are still haunted by memories of the downturns of 2000 and 2008, but they have left despondency behind and are somewhere around hope and relief. This analysis suggests things are pretty healthy, a long ways away from euphoria.
More important than trying to read the mood of the times and predict the future is understanding how public sentiment drives markets. Enlightened with this we’re not worried about short-term volatility. Volatility is mostly just a reflection of volatile human emotions.
We’re long-term investors. We believe the world’s great corporations will make money and these earnings will in time drive the stock market up. That’s why we own these corporations.
It turns out that it really isn’t all that difficult to understand the stock market like an old pro. The late legendary money manager John Templeton summed it up best:
Our investments are being managed by seasoned mutual fund money managers who follow Sir John’s maxim. They buy and sell on our behalf as volatile public sentiment drive prices up and down, profiting from the opportunities that volatility provides.
So we can smile through the volatility, knowing that it presents opportunity, not danger.
This memo was prepared solely by Terry and Patty Rempel who are registered representatives of FundEX (a member of the Mutual Funds Dealers Association of Canada and the MFDA Investor Protection Corporation). The views and opinions, including any recommendations, expressed in this memo are those of Terry and Patty Rempel. Bluestone Financial is a personal trade name of Terry and Patty Rempel.