Not all investment one-liners offer any real value—but “The stock market climbs a wall of worry” is the best one we’ve ever come across.
The news continually supplies things for investors to worry about. New worries crop up every day. They stay in the news for weeks, months, years…sometimes decades.
Here’s one of the smartest investment one-liners that anybody ever came up with: “The stock market climbs a wall of worry.” It’s something to keep in mind every time you hear any news that seems negative for the stock market and/or the economy.
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Here’s more on that top saying among investment one-liners
The best use is to take this investment one-liner as a reminder that in a healthy, rising market that has additional gains ahead, you never run out of things to worry about. New potential problems—new bricks in the wall of worry—come along all the time. Some disappear overnight. Others seem to drag on endlessly, but most eventually turn out to be little more than background noise.
On the other hand, the wall-of-worry concept can be misleading and costly if you use it as an excuse to ignore worrisome developments. Instead, we look closely at those developments, and take them into account when we make or reconsider investment decisions and recommendations.
To succeed as an investor, you need to react appropriately to each brick. Initial coverage tends to be alarmist, since it focuses on the worst-case scenario. Later investigation and developments usually show that the problem was transient and over-blown. Investors lose interest, and media attention moves on to something new.
Recognizing this process gives you the confidence to take a long-term approach to your investments, which is the safest and most effective way to succeed as an investor.
Worry around the sustainability of a stock market rise grows from human nature
The inevitable building of this wall grows out of human nature. Many people are instinctively cautious or conservative. When they see a stock or the stock market go on a rise, they look for reasons why the rise may falter or reverse. That’s especially true of stock-market commentators. When a stock or the market rises beyond their expectations, they dig deep for hidden flaws.
This spurs them to come up with comments that at times seem deliberately slanted to promote a negative view. You might call them “misleading indicators.” Here’s an example:
“The market had the biggest drop in a day (or week, or month),” or “the longest string of falling days, since… [a date chosen to maximize shock value].” When these kinds of comparisons began appearing in the news this year, after a long dry spell, some investors took it as ominous news. They assumed it meant the market was at risk of greater declines. It means nothing of the kind.
Sometimes, of course, the market puts on big one-day declines near the start of a long-term price decline. It has also done so near the end of such declines and at various points in the middle. The same goes for big one-week and one-month declines and for long strings of down days.
When you look beyond immediate stock market movements, you can reduce the anxiety of anticipating a market boom or collapse
Stock market trends are the general direction in which the stock market is heading. These market trends are dictated by a number of factors: what sector investors favour at the moment, economic and world news, interest rates and other trends from industries such as technology or resources, and so on. These trends could be positive or negative, and they could lead to a huge boom for a stock market. They could also lead to a big downturn.
It pays to keep in mind that the stock market anticipates changes, and no stock trend lasts forever. Stocks can go on lengthy downturns due to business and economic problems. However, the market typically starts to go back up long before the problems get solved.
We think that in general, long-term investors should be cautious optimists. Don’t let media sound bites and self-serving short-term predictions dictate your decisions when you’re investing in stocks.
Being aware of the “wall of worry will help you keep stock-market fluctuations in perspective
Every year, the market will hit a series of “new highs for the year,” or a series of “new lows for the year.” In many years, it will hit some of each.
When you adopt “A rising market climbs a wall of worry” as a mindset, it will help you maintain your perspective. You’ll start to recognize that milestones like these are trivia passed off as meaningful statistics. The investment news is full of them. You may find they make interesting reading or listening, but they also burn up valuable time. You’ll earn a far greater return on that time if you devote it to learning and comparing facts about the companies you invest in.
Bonus tip: Use our three-part Successful Investor approach to find higher-quality investments and build a top portfolio
Invest mainly in well-established, dividend-paying companies, with a history of rising sales if not earnings and dividends.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities.
Downplay or avoid stocks in the broker/media limelight.
What other investment one-liners have helped shape your investing mindset?
What do you do to keep media coverage of the stock market in perspective?
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