There’s always some reason somebody believes the financial markets are about to collapse. We harp on this quite a bit, but unfortunately the financial media give us a lot of opportunities.

We as a species are really good at pattern recognition – especially recognizing patterns that represent a threat. From an evolutionary perspective, this makes a lot of sense. When you’re worried about being eaten, the cost of a false positive is a lot lower than the cost of a false negative.

But the fact that we recognize a pattern doesn’t necessarily mean that pattern will repeat. We could go back and identify patterns in the data before every significant market decline. But that likely wouldn’t actually tell us much about what will happen in the future.

Market movement is based off of new information, and the markets almost instantaneously reflect that new information. The types of patterns this article is talking about are the things that traders and speculators constantly obsess over.

The markets know what the VIX is doing. They know what Chinese manufacturing is doing. None of this is a surprise at this point, so all of this information is already priced into the markets. What matters for future returns is what happens next. If tomorrow’s news is better than expected, prices will go up. If tomorrow’s news is worse than expected, prices will go down. It’s the same as any other point in time.

The financial services industry and the financial media know that sensationalism helps them make money, but it doesn’t help you make money. The key to a good investment experience is not following every dip and dive that analysts predict for the markets. The key to a good investment experience is to stay disciplined and focus on the long term.

To see this in action, take a look at our ebook “Investing Through the Decades.”

 

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