Apparently the S&P 500 dropped 3.5% yesterday. Not bad for one day!
Let’s see what I haven’t done yet:
1. I haven’t logged into Vanguard.com, where all my IRAs are.
2. I haven’t logged into Fidelity.com, where my 401(k) is.
3. I haven’t logged into Scottrade, where… oh wait, I don’t have any individual stocks right now.
Why don’t I care? Because not only do I not have any control over the numbers, but there is also nothing I am going to do in response to what I see. I won’t be relieved, nor will I get depressed.
Remember, for every trade there is a buyer and a seller. The buyer thinks he’s getting a good deal. The seller think she’s getting a good deal. Both can’t be right. So now you must ask, how much do you want to bet that you are smarter then the next person? Many of us are competitive people, and it’s hard to admit that you’re average. This pervasive human tendency to overestimate one?s achievements and capabilities in relation to others is sometimes referred to as the Lake Wobegon effect (where all the children are above average).
For example, do you think you are an above-average driver? During one such survey, 80% of respondents rated themselves in the top 30% of all drivers. Hmm…
On top of that, you are going against the headwind of trade commissions, the bid-ask spread, and taxes on generated capital gains.
By essentially investing in every publicly-traded company out there (although not on a perfect market-cap weighted basis), I am able to take a different, non-competitive view of things. The way I see it, every single day millions of people are waking up and going to work in order to create value. They are thinking up new ideas, making better widgets and services, and selling those widgets and services to new people. And then they go to sleep, and people on the other side of the world wake up and do the same thing. It doesn’t matter if they are working for Ford or GM, Intel or AMD, Sirius or XM Radio. As a whole, value will be created using my money, and I sleep well at night.