Physics and the Stock Market

What goes up must come down?

I learned back in physics class that:

• Every action has an equal, opposite action.

And that implies that what goes up must indeed come down. The media is more than happy of late to point out this “fact” when it comes to the achievement of all-time highs in the stock market. They cry out, “When’s the crash coming?” or “Get out now” amongst many other things.

Are they right? Maybe, but I’ve got a different perspective.

Will the market go down?

In short—absolutely! But I don’t think that’s the question that we should ask when it comes to investing. Instead, the question to ask is:

• Do I want to participate in the collective value of humankind?

By my way of thinking, the stock market reflects the value of a number of companies. These companies are made up of people—and the value of the companies comes from the collective mental genius of all of their employees. To me, this is a “rocket ship” that I want to be on.

Does that mean that the market will always go up? Nope. In FACT—and I use that word intentionally—I’m 99.999% certain that we will have periods of time when the market goes DOWN. But, long-term, I am extremely confident that we will continue to grow as a civilization and will create more economic value, which will be reflected in companies being worth more, stock prices being higher, and the market rising over the LONG-TERM.

So why not get out now—and jump back in when the market goes down?

If only it were that simple!!!! The strategy of jumping out of the market when it is at peaks, and back in when it is at troughs, is known as market-timing. And it’s a fool’s game. No one has proven that they have the ability to effectively time the market. Read that again. No one.

If you don’t believe me, do the research yourself. Sure, you’ll find some folks who claim that they have done so. But when you investigate their claims, you’ll find that they don’t have a long-term track record of success.

If you don’t believe the facts—which is crazy in my opinion—can you at least subject this idea to the following “sniff test”?

• Does it seem “too good to be true” that you can jump in and out of the market at exactly the right time?

There’s a reason that your mother told you to be careful about things that sound too good to be true!

To pull things together here, history would suggest:

• The market is at what is nearly an all-time high.
• At SOME TIME the market will go down.
• Determining when this will occur is impossible to do consistently.
• Long term the market will trend higher.
• Investing in the intellectual capacity of humankind is a wise investment.

All of this has me unconcerned about the articles the press is putting out trying to scare us—again!!!

You can read a bit more information on this topic here.

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