So what happened to the market on Monday?
I don’t know and anyone who says they do know is full of it. Because investing involves lots of numbers and math, it is easy to assume that there are clear answers to questions like this. Math is constant. 2+2=4. Investing is not constant. 2+2= whatever the next guy is willing to pay for it and that person might value 2 differently than you or I. Increasingly, the next guy isn’t even a person at all, it’s a computer. Math serves more as a frame of reference in investing than as an absolute.
Ok, that was a boring non-answer. I’ve found that people asking about investing don’t actually want an update on the reality of the markets so much as a quick story – the more outrageous, the better. We want someone to blame when the market goes down and we want someone to tell us we’re smart when the market goes up. Basically, we’re looking for the Donald Trump version of the story. Light on facts, heavy on opinion, and if they’re wrong they are not held accountable because everyone’s focused on the latest wacky soundbite. Monday’s news, Trumpified: Monday’s yuge market swings were due to China’s market crashing. #Boom.
If my arm was twisted, I would say that Monday’s wild ride was due to computer trading algorithms that pushed each other into a downward spiral at speeds beyond human ability. There were mini-flash crashes in several stocks and ETFs, followed by equally quick recoveries. The good news is that things never got out of hand which tells me that we’ve learned a lot since the financial crisis when it seemed like the algos sometimes slipped the leash.
The thing is, the ‘why’ behind market movements are inconsequential for people who are investing over the long-term. ‘Why’ would be important if you could predict what the market will do based on what has happened in the past, but market timing just doesn’t work.
The Dow Jones Industrial Average moved over 3,000 points on Monday. It started down 1,089, gained 547, dropped 257, rose 619, fell 356, then clawed back 164 points. And that was in the first hour and a half of trading. Does this scare you? That’s ok. This was definitely not a normal day for the markets. Does it mean you should have done something on Monday? Does that mean you should do something now? Nope. More trading in a portfolio means more chances to screw up. Remember, to successfully time the market you not only have to sell when stocks look good, but have the guts to buy when things look bad.
So what really happened to the market on Monday? It gave you a great conversation starter if you’re heading to a networking event or happy hour.