Watch the owner, not the dog

Watch the owner, not the dog

May 31, 2022

As the stock market continues to fluctuate it is easy to start to worry or get nervous. Loss aversion is a natural thing and not at all uncommon. The last five months and even especially the past four weeks have been difficult to watch. For a brief moment, the S&P joined the NASDAQ at more than 20% below its previous high, which is the officially recognized symbol that the market is in a bear market. Investors are in an incredibly fragile state as worries about inflation, Federal Reserve policy moves, and geopolitical problems threaten investor sentiment daily. It has not at all been uncommon to see major drops of 3-4% in the markets one day and then jumps of 2-3% the next day. From a short-term point of view, this is very difficult to watch. How exactly can you know what to expect from one day to the next? For the long-term investor, the answer as to “what should I do?” can be as simple as, “keep your eye on the owner and not the dog.”

                As fun as it would be to leave that cryptic phrase alone and let you all decide what it means, I will explain what I mean. I cannot in fact take credit for the phrase as the idea behind it comes from Investor Ralph Wanger of Wanger Asset management. His description of the stock market, which I like, is that the markets are like a dog. This dog is very excitable meaning it will jump at anything that moves, and will veer off the path any chance it gets. We have seen this to be exactly the case the past few months. Generally, the markets have taken a big hit this year to date, but the intraday and intraweek positive and negative swings have epitomized the excitability of investors. The path of the dog is very uncertain. Nobody knows when the next rally or selloff will happen. For long-term investors though it is not the dog that they should be worried about.

                Behind every sporadic dog is an owner holding the leash. The owner does not know where the dog is going to jump or pounce to. The owner does not know what the sudden movements of the canine will be. In the long run, the owner doesn’t need to know these things. They know where they are headed. While they don’t know what small sudden changes there will be along the way, they know that they are heading to a destination at a certain average speed. This is what long run investors need to think when they are witnessing the volatility that happens in the markets. Like we talked about a couple weeks ago, short term volatility can make or break short term investors and market timers. However, volatility is simply the price of admission for those who wish to participate in the upward movement of the markets over time. Another good way of thinking about this is that, “when in doubt zoom out”. If your investment time horizon is 10, 20, or 30+ years, change your viewing of returns to show the movement of markets over those periods of time and you will see the trend line of upward growth. Don’t focus on the dog. Their unpredictability can only cause stress if you have a plan in place already.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss.