Now and Then By Dave Goetsch 

Dave Goetsch, Executive Producer of The Big Bang Theory, reflects on his investment experience in the recent market downturn and contrasts his new perspective with memories of the 2008-2009 financial crisis.

Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair. It’s striking how different I feel now.

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.

You know regret if you have ever sold a fund or stock only to see it rise shortly afterwards. Worse yet is when the fund or stock you purchased to replace the one sold underperforms. Some index funds systematically duplicate these regretful transactions through what is called “Index reconstitution.”  As you might suspect, such transactions drag performance down. The widely-tracked Russell index series reconstitutes every June. This year it is Friday June 24, 2016.

A case study in just how easily the media’s headline predictions and warnings can mislead is attached in the essay below. In this essay, Weston Wellington reveals the difficulty of achieving superior investment performance by connecting the economic and financial news dots from 2014.

In an above-average, Lake Wobegon world, financial news would give us a leg up. The reality is that most of what passes for news has been anticipated or acted upon by a lightning-fast trader. This “news” offers no advantage. Better to think like Warren Buffett: have a strategy and exercise patience in executing it. A few pithy Buffett quotes illustrate the idea:

How information is presented—or “framed,” in behavioral finance terminology —influences our perceptions. Whether you hear a market summary on the radio as you commute home, watch it on the nightly news, or read it on screen or in the paper, the financial media often frames the performance in disorienting ways. Jim Parker, Vice President, DFA Australia Limited, proposes three reorientation’s in his essay,“Future Testing.”

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