13 Sep Happy Days

Well, we are in the dog days of summer, and the stock market is going to the dogs – Down over 2% last week and on the skids again today. Why am I so happy you ask?

There are two wonderful qualities about the stock market. The first is that over time the return on it exceeds that on most other passive investments – certainly bonds. This PREMIUM we earn is in return for accepting volatility – both up and down. If the market rose in a straight line, it would do so at a barely discernable slope. Because so many people are fearful of volatility, we who are willing and able to tolerate it are able to demand a premium rate of return.

The second quality is that we are able to buy and sell in the stock market at will. Now, that doesn’t bode so well for people who react to fear by selling when the market goes down, or greed by buying when it is rising at an unsustainable pace. But, for those of us who are disciplined to set an asset allocation and continuously rebalance back to I as market swings bring it out of balance; well, we gain the advantage of buying low and selling high over and over again. The more often and sharply the market swings, the more extra return that can be created.

There is an old adage in the retail trades, that profit is not in the price you receive when you sell your wares, but in the discount you receive when you buy them at wholesale. It is always the buyer for the firm who truly establishes the profit to be earned.

So, as nice as it is to see the market going up, I am always happiest when it goes down so I can put on my buyer’s hat and have a party.