Investing Is Hard

Near the start of every year, the President of the United States delivers the State of the Union Address. The speech is essentially a report card on how the US fared in the year that just passed and what lies ahead. It’s also a good gauge of the general sentiment of the US population on the country’s social, political, and economic future.

In one particular year, the then-US President said: 

“We are fortunate to be alive at this moment in history. Never before has our nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats. Never before have we had such a blessed opportunity — and, therefore, such a profound obligation — to build the more perfect union of our founders’ dreams.

We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back budget surpluses in 42 years. And next month, America will achieve the longest period of economic growth in our entire history.

My fellow Americans, the state of our union is the strongest it has ever been.”

In another particular year, the US President of the time commented:

“One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who’d already known poverty, life has become that much harder. This recession has also compounded the burdens that America’s families have been dealing with for decades — the burden of working harder and longer for less; of being unable to save enough to retire or help kids with college.”

What do you think happened to the US stock market after the first and second speeches? Take some time to think – and no Googling allowed! If you had to bet on whether US stocks rose or declined after each speech, how would you bet?

Ready?

The first speech was delivered in January 2000, by Bill Clinton, near the peak of the dotcom bubble that saw US stocks – represented by the S&P 500 – fall by nearly half just a few years later. By the end of 2010, US stocks were lower than where they were when President Clinton gave his State of the Union Address.

Source: Yahoo Finance

The second speech was from President Barack Obama and was from January 2010. The US stock market bottomed out in March 2009 from the Great Financial Crisis. And from January 2010 to today, US stocks have been on an absolute tear, rising three-fold.

Source: Yahoo Finance

Investing is hard because the best time to invest can actually feel like the worst, while the worst time to invest can feel like the best time to do so. I’ve said before that I think “investing is only 5% finance and 95% everything else.” This 95% includes psychology and control of our emotions. But we humans are highly emotional creatures – and this is why investing is hard. The best antidote I currently have, is to be diversified geographically, and to invest regularly and – crucially – mechanically.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.

6 thoughts on “Investing Is Hard”

  1. and to invest regularly and – crucially – mechanically.
    Hi., Ser Jing,
    What is the meaning of invest mechanically?

    1. Hello Looi Tuck! “Invest mechanically” means you set a fixed schedule to invest – say, the first working day of each quarter – and just do it. Having a fixed schedule helps us to manage our emotions – Ser Jing

  2. Hi Ser Jin,
    Could that two state of union speech reflect the reality that “Never fight the Fed”. The first one (optimistic), Fed pumping is not needed, where as the second one, The Fed is pumping massive amount because of 2008 crisis ? This fits in with what you mention – 95% everything else (of which Fed money printing is a major factor apart from investor psychology). I would like to know what would make the Fed starting to wind back the prior cash printing ?

    1. Hi Teck! That’s an interesting view point. But I can’t answer your question because I really don’t spend much time thinking about what the Fed is doing; I make investments based on the strengths of a business. By the way, the “95%” I mentioned has actually nothing to do with the Fed. It includes things such as investor psychology, history, technology etc. – Ser Jing

  3. Hi Ser Jing! I am currently learning how to be an investor. I have listened to a few of your interviews and I have learnt so much from you!

    Do you think as an investor, it is important to learn about previous market crashes and historically what caused the market to plummet?
    I realised investing can be scary because even the strongest companies can see their stock prices falling down.

    1. Hi Meng Chun! Congrats on taking your first steps in your investing journey. Thanks for listening to my interviews and reading my articles. Yes, I think it’s really important to learn about market crashes and the broad strokes of why stocks fell in the past. Learning about market history helps us with expectations on what could happen in the future. More importantly, it helps us calm our nerves when stock prices fall. Respectfully, knowing that even the strongest companies can see their stock prices fall is *not* something scary – it just tells us that stock prices are volatile in the short run and that volatility is nothing to fear, if we have a long investing time horizon – Ser Jing

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