A friend of mine’s favorite word is myopic. I have to be honest with you that I had to look it up the first time that he used it.
Myopic – (adj); my·op·ic Pronunciation [mahy-op-ik] from Greek word myopia;
1. Ophthalmology. pertaining to or having myopia; nearsighted.
2. unable or unwilling to act prudently; shortsighted. Near- or short-sightedness, lacking foresight or scope.
3. lacking tolerance or understanding; narrow-minded.
Myopic is a great way to describe most investors these days during our turbulent stock market upheavals. Investors are only looking one foot in front of their faces and not seeing the entire landscape. It is a side effect of a 24/7 news industry that constantly bombards us with news. And, like any good newsperson knows, the saying, “If it bleeds, it leads” is still relevant today as it ever was. And, boy are our financial markets bleeding. What started as a trickle has erupted into a massive hemorrhage.
Stock Market. The stock markets are not acting on fundamental values of individual stocks. There has been no new information the last few days about ExxonMobil for example that would cause the price of the stock to move dramatically up and down several dollars. P/E Ratios are several year lows. Good companies that have earnings and revenue growth have seen their stocks decline with the overall market. Investors cannot see the forest for the trees.
Savings Rate. Charles Schwab recently commented on the lack of savings for retirement that Americans have accumulated. America’s savings rate has hovered for years at one or two percent of earnings or even negative by some estimations thanks to credit card usage. Many people have nothing saved for retirement, but they know that they want a good one. They think that the government will be there for them with Social Security despite all of the warnings that the program is in dire straights. Currently, Social Security only covers approximately 40% of retirees’ pre-retirement earnings.
Risk Tolerance. Investors say that they are tolerant of risk when the market is on a streak skyward. They plug their answers into easy hypothetical questions online about how they would feel if their investments tanked 30% in a year. Most people answer these surveys by saying that they would invest more or hold on to their good investments for the long term through the rough patches. So, they put more and more of their portfolios into equities because they say that they can handle the risk. But, most of us fib. We really did not know how we would respond to losing 30 or 40% of our investments during a bear market. But, now we know, and most investors have not been handling it well.
Investors are scared because we have not seen a market like this in our lifetimes. Most investors are only thinking about today without thought about where the market is going over the long term. We tell ourselves that we will be strong, but in reality, the average worker has a lot of questions. Many are thinking about yanking out 401-k at the bottom to put the money in more conservative investments or hide cash under the mattress.
So, what do we all do about our myopic-ness? For most people, it is too late now. Many professionals, pundits, and bloggers alike are holding the line against irrational shortsightedness. Everyday there are more and more articles on the internet about not panicking, staying the course, continue to invest, stick to your plan, think long term, etc. And, they are right. All of those things are true. They are not very comforting most nights. But, that is the best advice. Think long term. Think good thoughts. Do not constantly watch the stock ticker. See both the forest and the trees and know that in the grand scheme of the markets, this will be nothing more than a blip on the screen and a long forgotten memory twenty years from now.