The Stock Market Is Getting SCARY (A Few Thoughts)
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As I’m sure is the case for you as well, my portfolio has continued to go with gravity. And zooming out beyond just our individual portfolios, it seems that investors at large are becoming increasingly concerned about the market moving forward.
The Fear & Greed Index — which is essentially a measure of how investors feel about the state of the stock market — has slid deeper into “Fear” territory than anything we’ve seen in quite a while.
Source: Blossom
With share prices continuing to move lower across the board, that fear can end up feeding on itself. As prices drop, the fear gets worse, and investors get spooked. This leads to even more selling, which pushes prices even further south.
As I’m sure you can imagine, it becomes this vicious cycle where emotions start driving the whole thing instead of anything logical. We see this on the upside too — this is how bubbles are formed.
If you’re relatively new to the stock market and have been getting weary from all this red, I wouldn’t blame you. Even if you’ve been around the block a few times, declining share prices can still be gut-wrenching. It’s not always easy to bear.
No matter where you’re at in your investing journey, I want to share a few thoughts with you (that’s really all these newsletters are anyway). These are some of the things I’ve been thinking about during all of this market volatility, and hopefully they can help put things in perspective.
First and foremost, in the grand scheme of things, the drop we’re seeing right now is just a small blip in what will otherwise be a long and successful wealth-building experience.
Remember that the market moves in cycles. Sometimes prices go up (they’ve still done a lot of that this year), sometimes they go down.
But over long periods of time, assuming you’re thinking in decades (which you should be), things have a way of working themselves out. These drops in portfolio value always feel meaningful in the moment, but years from now, they end up looking like tiny speed bumps.
Second, periods like this remind me just how much human emotion can impact the market. It honestly makes you question the whole idea of market efficiency.
Like I said earlier, a big part of why share prices are going down isn’t because the businesses themselves suddenly got worse. It’s because of how the market participants (who are irrational, imperfect human beings) feel about things.
That important psychological piece often gets overlooked, which brings me to my third thought. The volatility we’re experiencing right now is a perfect reminder that you cannot think of stocks only as things on a screen that randomly go up and down every day.
Always remember that shares of stock represent ownership in living, breathing businesses — many of which are still fully intact and firing on all cylinders regardless of what their share prices have been doing this month (or this year, for that matter).
Regardless of what the market is doing, I’d encourage you to focus more on the business and its operations than on the daily share price movements. They really don’t mean anything on a day-to-day basis anyway if you’re a long-term shareholder.
In my opinion, this is one of the many great benefits of owning dividend-paying stocks — they offer an extra dimension to the whole investing experience. Because of the cash flow component, you’re not solely relying on the share price going up to generate a return.
And remember this too: at the end of the day, you’re a shareholder, not a shareflipper. These periods of volatility can actually create great opportunities to buy more shares of solid businesses at more favorable prices (and with higher yields if they pay a dividend).
If you plan on holding your shares for a long time — which, as a technical business owner, you should — moments like this are worth taking advantage of. It’s always better to buy something for cheaper if you can.
I liken the whole thing to a slingshot. Share prices going down represent the slingshot being pulled back, creating potential energy. If you’re reinvesting dividends and buying the dips along the way, that only creates more potential energy.
Then when the market starts flying back up again, the slingshot is released. All that potential energy turns kinetic and launches your portfolio higher than it’s ever been before. It all works out in the end, and you can still collect that cash flow along the way.
With all of that said, how are you feeling about the market right now? Are you taking advantage of any great buying opportunities? Write to me here and let me know.
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IN MY PORTFOLIO 📈
Portfolio performance provided by Snowball Analytics
ICYMI 🎥
The Hardest Money Truth You Never Learned In School
In this episode of The Deep End, we talk about the mindset that actually builds wealth, why resilience matters more than stock-picking, and how to think about money in a world that’s getting more distracted and more comfortable than ever.
CAREFULLY CURATED 🔍
📺 Dividend Rocket Fuel - If you're going to watch/listen to anything this week, make it this Masters of the Market episode featuring the legendary PPC Ian. It will light a fire under you.
🎧 The Compounding Blueprint - This episode of The 100 Year Thinkers features two iconic investors (and authors): Chris Mayer and Robert Hagstrom. Together, they break down what it really takes to find long-term compounders in a market obsessed with quarterly results.
📚 Avoid The Spotlight - This article from MicroCap Club dives into what happens when your success puts you in the spotlight, and why the smartest investors often fly under the radar.
SINCE YOU ASKED 💬
"Is SCHD + SCHG all I need for ETFs? Should I add VOO as well, or is there too much overlap?"
- Jo Wela | YouTube
This is a great question! And honestly, good on you for even thinking about overlap when it comes to ETFs. A lot of investors don’t, and it causes them to own way too many funds that look almost identical.
To answer your question, it helps to first look at how much overlap there actually is between VOO (the Vanguard S&P 500 ETF) and SCHG (the Schwab U.S. Large-Cap Growth ETF). Since both tilt heavily toward large-cap growth, this is where we’re most likely to find any real overlap.
Source: Snapstock
From the image above, we can see there’s about 55% total overlap between the two, which begs the question: Is that too much?
To be honest, it’s hard to say. SCHG holds 197 stocks, and 112 of those are also in VOO, which means that you still get exposure to 85 companies that VOO doesn’t have. At the same time, VOO gives you exposure to another 395 companies that aren’t in SCHG.
Based on that, you could definitely make the argument that there’s enough diversification to justify owning both. Still, even without VOO, SCHG has 197 holdings and SCHD has 103, so you’re not exactly lacking in the diversification department as it is.
Ultimately, I think you can really go either way. If you want the extra diversification, adding VOO won’t hurt you. But if you don’t, you’d survive just fine without it.
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