Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler talking about money and investing here.
War in Israel
Man, what a tough week to talk about money and investing, right?
So I woke up this morning, of course, doing some research for the show, and then the Wall Street Journal opened up and then all of a sudden, you get hit with war. Great.
I guess I probably should start off talking a little bit about this particular issue because these kinds of things happen. When you’re investing and dealing with your financial life and you’re just trying to plan for retirement, you think about, “Okay, how do events affect stock markets?”
I think it’s a really teachable moment, just talking about how events do affect stock markets, because you look back at wars in our past in the U.S. Of course, looking at World War II as the really, really big deal, stock markets can go down in anticipation of war. That’s basically what happened in the late 1930s.
Then when you get into war, and all of a sudden companies are producing different things to fight the war, stock markets can go way up, and that’s exactly what happened. You had a big jump in the stock market. It was really a huge, huge increase in value in different markets.
And it wasn’t just large companies. It was small companies and value companies and all different types of companies that really blossomed, and they took off during that period of time.
But it’s scary. You’re going through that period of time where you’re just going, “Hey, what’s going to happen?” And this is the thing about stock markets that I think people get wrong.
I don’t know, I haven’t heard anybody say anything about investing regarding this.
I think the bigger issue is so much deeper than investing.
You look at what tragedy has befallen the folks in Israel today, and you go, “Man, anything you can talk about with investing pales in comparison to what’s going on over there.”
Then you’re hearing different politicians coming out and saying, “Hey, we’re in support of Israel,” and that was kind of an eye opener. We didn’t really know how that was going to be played out, quite frankly. You don’t really know how people are going to respond to things, but that has been how they’ve been responding.
Compared to 9/11
I think what happens is people can get into self-preservation. It’s like when 9/11 happened. Then some people are actually comparing this to 9/11. They’re saying this is Israel’s 9/11 because it was such a shock.
This just proves that it doesn’t matter who you are, you can have big surprises.
Whether you’re Israel or whether you’re the United States, you can have big surprises that just rock your world.
So the thing that happened with 9/11 is, of course, it drew people together immediately.
I’ll never forget being stuck out of the state with a young son. My son Alex and I, we were stuck in New York. Of all places that you could be, we were stuck in New York. I remember being with my parents and going, “Oh, boy, what on earth is going on?” Then we ended up getting stuck.
We couldn’t fly back. We couldn’t fly back to Tennessee to be back with my wife and my new son. But what ended up happening was we ended up stuck there and then we came back.
Then of course, the very first thing that happens is that we have all of these things going on in the park over in Goodlettsville. People were having memorials, and they were having get-togethers out at the park.
People came together, but the stock market literally shut down during that period of time, then it opened lower, and that’s the lesson.
I don’t know how any of this stuff is going to pan out. I really don’t know what’s going to happen with markets. People may be tempted to try to time the market, to get out because they’re scared about what’s going on, thinking that the world is in turmoil and now it’s time to bail out, or do something different, or put their money off on the sideline for safety’s sake or whatever.
But recognize that what happened when the stock market opened after 9/11 is that it opened down immediately. Immediately what happened was people were paying lower prices for stocks. As a result, if you decided to get out, you ended up getting that lower price.
Then the next year, 2002, was very, very rough, but nobody knew what 2002 was going to look like. But then you had 2003, which was a meteoric jump in value, and 2004 was as well, and 2005 and 2006. The problem with market time is you have to be right twice. Right, Ira?
Ira Work: That is absolutely correct.
PW: That’s the challenge, man.
Lots of Uncertainty
IW: Well, and these are the types of things that are very tempting for an investor to really try to time the market. Think about this: The markets are going to be crazy Monday.
PW: Maybe, quite possibly.
IW: Because there’ll probably be a little bit of uncertainty.
PW: But we don’t know what’s going to happen over the next 24 hours is the problem, right?
IW: Right. No.
We don’t even know what’s going to happen over the next six hours.
PW: No, we don’t.
IW: I know that my brother-in-law is 65-years-old. He was just called in. So he lives part-time here, part-time in the States, and Israel and his unit. He’s 65. Okay?
PW: He was called in?
IW: Every unit in Israel has been called up.
PW: Wow.
I know there has been a big move over there. I’ve been seeing the troop vehicles loaded up, and they’re headed off, and there’s a lot going on over there, man.
IW: Yeah, there is.
PW: I knew you would have a really strong opinion and a point of view regarding this. I was so glad that you were on the show today because of what’s going on and your background and family and so on and so forth.
IW: Yeah. I’m actually not allowed to state my full opinion here on the radio because I would totally be blocked and go to jail on Facebook.
PW: Wait a minute, you would go to jail — Maybe off-air you can tell me something, I’m not sure —
IW: Well, you know if you say something that is not in line with the socialists on Facebook, if you say something that is considered to be threatening other people, they put you in jail for 30 days, meaning you cannot post anything else. Even if it’s like, “Hey, Paul, I love you.” You can’t even post that, but this is typical —
PW: Not sure where he is going with this, but —
IW: All right. So this is typical. I remember the first time I went to Israel was 1987. After I left Israel — I was there for two weeks — the Intifada broke out in ’87, and it’s just been crazy.
It’s very typical for terrorists, especially the Islamic terrorists, to start a war or invade the country, to drop bombs during the Shabbat — which every week in Israel they celebrate Shabbat, the whole city. Most of the country does shut down because it’s considered —
PW: It’s the Sabbath.
IW: — one the holy days, Sabbath. Right.
PW: Yeah. I’m just translating for anybody that doesn’t know what that is.
IW: But today is also a very holy Jewish holiday called “Simchat Torah,” and we’ll get into that.
PW: Right. Right. Right.
IW: But the reality is their country was a lot more, let’s say, not on high alert or the highest alert. They were a lot more relaxed because of the holiday, and that’s what cowards do. They bully. They attack people who they perceive to be weaker or have no worries.
PW: Well, it’s like Pearl Harbor, if you think about it. It was on a Sunday, and a lot of people were off at church doing the things that they did on a Sunday, and they were not on a high alert they normally would be, so their defenses were down.
The Biggest Ups in the Market
IW: Right, but going back to different time periods, like you said, even when the market does go down, people will be tempted to drop out at the worst time, and they’ll be staying out. Then the rebound that happens usually happens so fast.
PW: Yes.
IW: And it’s usually big.
If you look historically at investing, the biggest ups in the markets are right after a significant drop.
PW: Yeah, and I did a video on that, and it was really, really interesting looking back at history, and that was the point being made was that the jumps are so fast.
Forget it. You’re not getting in on time.
IW: No.
PW: And there’s no way to figure out what causes the up to happen. It’s news that nobody’s predicting. That’s why I made the comment because so many people are saying it’s going to take months and months and months and months and months. This is going to be really, really long.
I’m going, “I don’t know yet, maybe,” and that’s quite possible. It could be a long period of time that this is going on, but we can’t account for news that comes out that is just totally out of the blue.
IW: No, and news is really the only thing that does cause prices of stock to change. That’s why it’s called news because it’s new information that is released, whether it’s a war, whether it’s a plane crash that affects Boeing, whether it’s a self-driving car that will affect an electric car company perhaps or —
PW: Well, and then, of course, you have defense companies and contractors during World War II and companies in general. Manufacturers took off like crazy during the war because they had to produce things for the war effort. So you’ll have whoever the benefactor is going to be.
When we look back at history and we go, “What is going to cause markets to do what they’re going to do?” Well, it depends on who’s going to be positively benefited and negatively affected by those changes. That really is going to drive things.
You don’t know because as time goes on, new information comes out and says, “Oh, those companies and those areas are going to benefit from that.” Then, of course, you don’t know what’s going to happen as far as how other countries are going to react to what’s happening over there.
IW: Yeah, and that’s very true.
Market Timing
I think for most investors, we tend to look at it from a perspective of, “I don’t want to get hurt.” So therefore, when the markets are going down, what we fear or what we’re concerned about is, “I’m going to lose more money.”
I don’t know of any studies that are done, maybe you do, Paul, that are about investors who took a purposeful or an intentional action when everything seems to be going to heck in a handbasket and said, “Oh, we’re just investing right now.” Then when the markets go up — and they seem to be going up so much when most investors say, “You know what? I’m going to get in now because things are looking really good” — but nobody says, “You know what, I’m going to get out.” You don’t see —
PW: I don’t know any studies like that because that is absolutely opposite human nature.
IW: Right. We don’t have any studies on what I would call market timing in reverse.
PW: No. Of course, we just can allude back to the studies that have been done on market timing with pension plans, for example, 100% of them in the one Brinson, Hood and Beebower study actually had worse returns as a result of their market timing efforts.
IW: Right.
PW: Then, of course, you look at fund managers and over 90% of them, depending on the asset class you’re looking at, underperform the asset category over 15 years.
Really, if you look at why they underperformed, it was because of two things: stock picking and market timing. So you look at the anecdotal evidence there — well, not necessarily anecdotal so much, but it’s real evidence, and it’s not just isolated — and you see:
Engaging in those types of activities is just not helpful.
Hence, when we look at that and say, ‘Well, are there any research studies on people actually doing it the other way?” I think you’d be like, “Where are those people?”
IW: I don’t think those people, if they are out there, if they’re willing to tell you that, if they’re out there. If I knew what stock was going to win this year, why would I tell you?
PW: I have done studies looking at, if you did have good market timing ability, what would happen? How much money would you have? Let’s just put it this way, nobody’s that rich.
IW: But no, let’s say somebody really had that ability, right? Why would they tell you what to do?
PW: Right.
IW: If I had the six winning lottery numbers tonight, would I tell you what they are? Say, “Hey Paul, you know what? I got the six winning lottery numbers tonight.”
PW: Yeah. Why would you dilute the winnings? Right.
IW: Right.
PW: Exactly. It would make no sense.
Stay Invested
IW: But I think that if any investors are concerned about what might be happening to our stock market with this war now and the war that’s continuing in Ukraine, I wouldn’t make any investment decisions about it.
I would just continue to just stay diversified, stay invested, and continue to rebalance your portfolio.
Know what your limits are, and just let your portfolio do its job.
Because one thing that we know for sure: We don’t know what’s going to happen over the next 6 hours, 12 hours, 24 hours, one month, three months, five months, next year, or next two years.
But we do know that the next 100% move in the stock market will likely be an up move.
PW: It has always been an up move. Yes.
IW: Right. So just stay disciplined, stay invested.
This is a major event. There’s been over 100 people killed. There’s been hundreds injured now. I think we’re going to see more deaths along the way. They’ve already said there’s been almost 200 people in Gaza killed now in retaliation.
PW: I’ve been watching it happen, yeah.
IW: Based on history, it’ll have a short-term effect. When you look at how long your life in the market is going to be, this is going to be a short-term effect.
PW: I think that is a very good note to close out the segment on. I think that’s a really good thought.
If you’re an older investor, chances are really good. If you’ve listened to this show for any period of time, you’re going to have a significant amount if your time horizon is shorter than assets in fixed-income investments, and that is your safety net to help you ride out these types of things.
I’m not even saying what’s going to happen in the market over the next few weeks. I have no clue. It could be up. Really, you just do not know. It could be something that is actually beneficial in ways that you just wouldn’t even be thinking about.
So that’s really good advice. We’ll be back right after this.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
