Let’s say you’re saving up vacation time for a big trip next year. You’re aiming for February, that time of year when winter starts to drag, and you haven’t seen the sun for a few months. You need to pick a place that’s going to be warm, hopefully with a good beach on which to take a snooze and read a book.
Do you pick:
A. Myrtle Beach because this week’s forecast is balmy?
B. The Caribbean because it has been reliably warm for millennia?
(I’ll give you a hint – The correct answer is B.)
If you want the best chances for February beach naps in the sun, the Caribbean is where you need to go. You’re not going to gamble your time and money on a winter trip to Myrtle Beach because the weather looks nice today. History shows us that the climate in the Caribbean is reliably warmer in the winter months, even if South Carolina is presently experiencing warm temperatures.
This is the same perspective we need to bring to investing. Think of the current events surrounding the market being a little like the weather. Just like you can’t reasonably expect Myrtle Beach to be a winter getaway, you can’t expect that investing in response to the latest news releases will yield the results you’re looking for.
Now consider the climate. Climate refers to “the weather conditions prevailing in an area in general or over a long period.” We can reliably expect the weather to be a specific way in a specific area, and we know this with relative certainty because of its historical data. Of course, there are still storms and weather oddities that occur, but the climate generally prevails in the long term. The Bahamas might have a tropical storm, but we're pretty sure that before and after, the weather will still be warm.
"When we invest based on market climate, we are building upon this foundation of historical data."
We are now in the unique position of observing the financial market in a similar way. Over the years, vast amounts of historical stock data have been integrated and analyzed. Thanks to a growing number of persevering individuals, we can benefit from the market patterns they’ve identified. When we invest based on market climate, we are building upon this foundation of historical data.
While we can’t ever be sure which stocks will go up or down, we are far more educated about general stock behaviors and patterns because of this information. By investing in a diverse array of these stocks, we capitalize on this climate philosophy and head into the future with more assuredness.
So, when you hear stories about the market- the S&P 500 reaching record highs, or the NASDAQ dropping points, or any other news-worthy commentary on what the stock market will do next, consider where you’ve put your money. Are you reacting to the weather? Or have you planned on the climate?