Being constantly connected to the world, people often judge things daily. When it comes to the stock market, one can see what’s happening in the market daily. When looking at historical data, there are all kinds of fluctuations. It’s like watching a yo-yo go up and down on any day. One may ask themselves, “What’s the point of investing in the market when it’s up one day and down the next?" The stock market is like someone playing with a yo-yo while riding the up escalator. The key is to focus on the escalator, not the yo-yo.
Visualize someone playing with a yo-yo: the yo-yo continually going up and down, up and down. The constant and daily up and down mirrors investing. The escalator represents long-term investing. On an annualized basis, it keeps rising and rising.
The natural upward movement can be attributed to increases in the global population, inflation, and businesses selling more to more people. The values keep growing and growing like the economy; like the population; like consumption. These companies sell more products and make more money, and that makes them more profitable. So even as the yo-yo goes up and down, the gradual rise of the escalator is inevitable.
We want to provide a different perspective on time and how you measure or perceive situations and attach emotions to how things are going. If we look at the same data, first looking at it daily and then month over month, we notice the volatility begins to smooth out. Now, we can look from monthly to quarterly, and it smooths out even more. On an annualized yearly basis, it’s almost like the up and down yo-yo effect doesn’t take place.
*2022 yet to be determined
If you get caught up in the daily returns, you may not want to be in the markets. And as humans, we react more strongly to unexpected losses than unexpected gains. You may panic out of the markets in times of loss. You may not realize that ride is life-changing over long periods when it comes to retirement, income, legacy, and the things you want to do in life if you were to just stay on the escalator.
We encourage you to realize how you perceive time. Realize how the visual of the daily yo-yo of the market fluctuations make you feel. Now realize how the visual yearly and decade market movement makes you feel.
Focusing on the year and decades will make you a better investor if you don’t land on any one day, month, quarter, or year. We want you to focus on an overall trend, the escalator, rather than the yo-yo. That is what you’re trying to participate in when you’re a long-term investor.