Hi Reader,

I hope you are enjoying the last bit of summer as we lean into the colder months soon. Meanwhile, I have been in India, enjoying the relentless monsoons. Somehow, the weather reports here always say, “This year the rain (feel free to plug in any other season) has been the worst of all years in the last 50 years.”
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Soon this becomes a conversation starter in office circles. Then, the channels replay the same video next year.
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Of course, I don’t want to negate the effects of climate change but here’s the analogy I am trying to draw. The stock market news works much like the weather reports. Nobody tells you that—every slump is not a bearish period (or the warning of an impending doom).

Every time the NASDAQ or the NYSE crash, your investments aren’t vanishing into crispy stock market air. Thanks to the extremely volatile nature of the stock markets (and the market reporters), I get a dozen questions like these every month:

• “Should I invest in the market given how it is already at highs?”
• “Should I sell since it is falling too much?”
• “How long before the market recovers?”

While these are reasonable questions, I sense a subtext of panic and fear. In these cases, my usual response is, let’s take a deep breath and play a quick game.

Trust the Data, Ditch the News

Game Caveat: Keep your cynical lens of the stock market aside. That said, I am positive you will still get this wrong.
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​Q1: From 1990 through the 2000 dot com bust, the 2008 Great Recession, and COVID-19 - through 2023, how many years do you think the market had negative returns?

A1: 9 years

Q2: How many of these were less than 10%?

A2: 5 years

The market has been down only 30 times since 1928 (almost 100 years).
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​In totality, the stock market has returned negative returns ONLY 20 out of 100 years. And these were not consistently bearish periods either.
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This is to say that the market ‘usually’ goes up, and it ‘sometimes’ goes down.

The keywords here are—usually and sometimes (and I don’t use them lightly). The catch, though, is when the market goes up, it feels steady and almost natural. However, when it goes down, it is faster and more volatile than when it goes up.

But you will not hear this on any news channel or stock reporting website (it’s a trade secret, Shhhh).
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My unsolicited advice is to beware of the “Stock Market Fear-Mongering Syndrome” (Yep, I just coined that term). If you aren't careful, it will push you into making impulsive buy or sell decisions.
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Let’s look at the S&P index since 1928 for more proof.

Here are my learnings from this single chart:

• From 1926 to 2020, the average return for the U.S. stock market was at least 10% per year
• Stock market returns were almost always above average (you’d love these kind of returns)
• Stock market calamities are rarer than you think or the news makes us think. You can count them on your fingers from the graph
• It is almost impossible to predict a crash
• Being utterly cynical towards the market is a low-probability bet. It leaves you in a position of zero gains and no scope of risk, which is self-defeating for your investments
• You are bound to gain over a period of time when you are “cautiously optimistic”, and can prepare for upsides and downsides in the market
• If every dip and dot of red gets to your nerves, it’s time to reconsider your approach to stock market investing

Same Same But Different

Wait, there’s more. It’s not just the S&P.
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Let’s look at India’s Nifty 50 from 1999 to 2021.
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In 22 years, NIFTY delivered a 14.2% CAGR with an annualized volatility of 22.9%. Moreover, it has given positive returns in 17 out of 22 calendar years. It sounds crazy in retrospect.
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The takeaway is—that stock markets in India and abroad might be different in composition, regulations, and other factors. But we notice that they have overlapping patterns. Yes, they are ‘same same but different.’
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So do I need to offer more proof to keep your stock market fear syndrome at bay?
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And what should you do instead? (Besides taking three deep breaths, of course)

Understanding the ‘Why’

Let’s understand the rationale behind why the stock market goes up more than it goes down.

To everyone’s surprise, there’s no stock market Illuminati (or even the Fed) waving a wand as per their whim and fancy. There are two reasons for this trend:
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1. The constant growth in the stock market is directly related to the economic prosperity of a country (and of the world). While the stock market is not equal to the economy, we see that as corporations grow and scale and consumers have more income, it is natural for the market to boom. Plus, as an investor in the market, you piggyback on the corporation's innovation and growth. You also get a direct part of their profits and cash flows through dividends. And this virtuous circle of growth continues.
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2. Greed and Fear: The market is driven by these two emotions and the price of the stocks/equities is determined by how many people are buying at a certain price. When calmer heads prevail, we see a correction to bring valuations down to more reasonable levels.

Even though this pattern exists, it doesn’t mean you (or the rich traders with their candlestick analysis) can predict or avoid the bear market.

You just end up seeing and hearing drastically more often about the dips, the reds, and the bearish stuff because it makes for juicy and compelling news. It catches eyeballs and that’s good for news channels, not for your hard-earned money sitting ideal in the bank.

This is precisely what makes the stock markets darn attractive than any other asset class.
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And like Morgan Housel, author of the best-selling book Psychology of Money, said, “Volatility is the price of admission. The prize inside is superior long-term returns. You have to pay the price to get the returns.”

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On a leaving note, here’s a pro tip: If you can, pay less attention to the minute changes in the stock market despite the amount of information overload. This exercise in ignorance might just offer more benefits (financial and emotional) in the long term.

Give this experiment a try and let me know how it goes. Deal?
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That’s all for today.

See you next month!

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P.S.- Before you move to the next email, or check your stock-market returns, feel free to ping me your burning questions on Ask-Me-Anything Fridays on Linkedin.

Fun Corners of the Internet

• I am sucker for movies. I'm Tamil, its in my blood. And we love our stars. I am gearing up to watch The Greatest Of All Time( G.O.A.T) which is Vijay's second-last movie before he retires.
• I also watched the much-anticipated Disney release “Inside Out 2” and was blown away by the intricacy and introduction of concepts like parts of self and stream of consciousness. It turns out that adolescent therapists (Dr. Lisa Damour and others) played a huge role in researching and capturing a teenager's emotions.

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Whenever you're ready, here are 2 ways I can help you:

• If you're looking for support with your finances, you can start a (free) conversation with me to see how I can help. Here is my calendar for a FREE 30 minute consultation

• Not ready to commit? Email me your questions and I am happy to if I can get them answered in future editions of this newsletter.