Stocks capped their worst week in nearly two years with another round of intense choppy trading. Both the S&P and Dow closed out their third straight week of losses, down 5.7% and 4.6% respectively, while the Nasdaq Composite plunged 7.6% for the week, its worst weekly decline since March 2020. 

Prospect of an interest rate hike, rising inflation and mixed earnings reports from companies all contributed to a rise in volatility that caused a market that was slowly weakening in the first two weeks of January to get weaker last week and the bottom fell off. But, it is important to keep things in perspective – the S&P 500 year to date has declined 7.73% on the heels of 26.9% return in 2021, 16.3% return in 2020 and 28.9% return in 2019. 

Future Wealth’s View

In times of panic selling in the stock market, it is important not to pay attention to the daily movement in one’s portfolio, but many do the opposite. The emotional attachment to one’s wealth and to monitor on a day to day basis is a primal instinct. It takes some reading to understand that it is not the most sensible choice.

In a book I have read over and over many times and always come away with a better understanding of the stock market everytime I read it, Benjamin Graham states in his book “The Intelligent Investor” one key trait that makes one a better investor – Control the controllable. He goes on to suggest three attributes that every investor needs to develop – control your risk, control your expectations and most of all, control your behavior.

Another book I read this week – “The biology of belief” by Bruce Lipton addresses the seductiveness of the stock market. Neuroscience has shown that when the stock market goes up a few times in a row, regions of the human brain are geared to anticipate that it will happen again. On the flip side, when the market drops, the same regions expect things to keep getting worse. Lipton goes on to conclude that the human brain is wired to feel the pain of financial loss as being more than twice the pleasure of financial gain.

Of course, no amount of reading is going to help if we lose sight of our eventual goal. In a survey of individuals at a financial seminar in Florida, they were asked “Which one of you beat the S&P 500 year after year?”. Some said “yes”, many said “no” and then, one said “Who cares? I am living on the beach in Boca Raton, Florida, that’s enough”.