Stocks climb a ‘wall of worry’ — and you shouldn’t worry about it
🔸 Plus: People on Ibiza are being forced to live in their cars 🔸 Why divestment campaigns don’t work 🔸 The Goldman Sachs MD who's an Instagram fitness influencer 🔸
Today’s 2-minute guide to demystifying money and making you richer
Stocks are climbing “the wall of worry”.
People on Ibiza are being forced to live in their cars.
Everyone is laughing at this terrible rom-com movie trailer made by AI.
Why divestment campaigns don’t work.
SuperDry collapsed to 5p a share, valuing the entire company at just $6 million.
In reality, TikTok is run by China, insiders say.
A managing director at Goldman Sachs in London is also a fitness influencer on Instagram.
The markets, year-to-date
S&P 500: 5,022.21 ⬆️ 5.89%
FTSE 100: 7,847.99 ⬆️ 1.88%
Bitcoin: $61,553.80 ⬆️ 39.35%
GBP to USD: $1.2470 ⬇️ 2.03%
GBP to EUR: €1.1685 ⬆️ 1.32%
The wall of worry
Stocks took a hit recently as people began worrying about the potential for World War III: Iran bombed Israel. Israel and Hamas are at war in Gaza. Russia continues its assault on Ukraine. What if China invades Taiwan while the West is distracted?
It’s all undeniably grim. And when things get grim, many people sell their investments because they want the safety of cash. The general thinking: Better to fill the bunker with canned food now, while you still can. Because when the End of the World comes, your pension statements won’t be any use …
The VIX is going up — meaning investors are scared
The VIX is a “volatility index” and it measures how dramatically stocks are moving up or down. It is often referred to as the “fear index” because it generally moves sharply up when investors get nervous and start selling — which they did in the last few days. Investors watch the VIX because they believe that if the fear index goes up, stocks will go down.
In the chart above, the VIX is the red line. You can see it spiking sharply whenever a crisis comes along.
The blue line is the S&P 500 which, compared to the VIX, sails along calmly like a stately ocean liner, come what may.
Sometimes the VIX gets things right. You can see it went through the roof at the beginning of the Covid pandemic and stocks did indeed tumble. The early days of coronavirus really did feel like End of the World.
But anyone who cashed out in that dip lost a lot of money. Within a year, the S&P was back on course, packing on the gains for anyone who had the fortitude to do nothing.
When there’s trouble, stocks climb ‘a wall of worry’
Bad news gets priced-in early, and investors scan the long-term for future growth. The future, as the chart shows, usually tends to be more prosperous than the present. Stocks are a bet on what will happen in the future, not what’s happening now — and that’s why stocks usually recover pretty quickly from bad news.
The clunky black arrows on the chart show you that crises arrive routinely, sometimes by accident, sometimes via natural causes, and sometimes — like now — because bad people have the upper hand.
And yet stocks go up.
The data show that crises tend to be short-term events as far as the markets are concerned. Here’s Joachim Klement, an investment banker who writes a great Substack on equities:
Don’t panic (inscribed in large friendly letters)
“The most important rule for investors to heed in response to a geopolitical crisis is not to panic. The evidence is extremely clear on one thing: the vast majority of geopolitical events do not matter for equity market performance over investment horizons of one month or longer.
So, repeat after me: Don’t panic. And resist the urge to sell stocks in a rush. On average, the correct response to a geopolitical crisis is to buy risky assets as they sell off.”
None of this feels good, of course. The notion that a crisis is a buying opportunity is pretty callous. But remember that crises aren't helped by you screwing around with your savings, or not understanding how long-term investing works, or failing to save at all.
If you want to do something good, put your money where your mouth is:
You can donate to Médecins Sans Frontières here to help refugees the world over.
And you can donate to United24 here, to directly fund the defence of Ukraine.
Just don’t cash out your savings to do it.
And for dessert …
People on Ibiza are being forced to live in their cars. Jobs are plentiful but they don’t pay very well. Housing is in short supply. "Here there's all the work you could want, but there isn't anywhere to live,” says one local.
Good news for humans: The first full-length romantic comedy made by AI looks like a complete pile of rubbish. See the trailer here.
Divestment campaigns don’t work. Institutional investors are so big they simply absorb the boycott sales.
SuperDry stock collapsed to just 5p per share after sales declined 25%, valuing the entire company at just $6 million. The fashion brand was once worth £1.7 billion.
In reality, TikTok is run by China. Eleven former employees told Fortune that the company’s claimed independence from China is merely cosmetic.
Graham Ambrose, a managing director at Goldman Sachs in London, is also a fitness influencer on Instagram called @LiftforLife.GDog.
More from Moneyin2:
The savings account with a 25% return that young people routinely ignore
Ignore financial influencers - the stats say they’re usually wrong
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Photos: nefasth via Flickr; Jim Edwards.
I'm in an older age group than the target of these emails, but I've been surprised at how interesting I've found them. Mysterious events in the financial world have suddenly been explained. Thanks Moneyin2 Gilligran