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The Market and the Jelly Bean Jar

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Everyone is interested in the direction of the stock market. Can the 9-year long bull market continue? Or do recent down days portend a coming bear market? The answer, of course, is no one knows what stock prices will do in the short run. There simply are no future facts.

The Jelly Bean Jar

For the past few weeks, we had a colorful jar of jelly beans atop the reception desk in our lobby. We asked clients coming in for meetings, as well as others who stopped by, to guess the number of beans in the jar.

The point of this exercise is to demonstrate how the average of all the guesses will likely be close to the actual number despite there being a 20-fold range in guesses from lowest to highest. The inference is that together we know more than we do alone. The diversity of the group that provided guesses was varied and wide, as are the millions of stock market participants each day.

We ran this same experiment a few years ago and the average of the collective guess was within a few percentage points of the actual number. The same held true this time as well.

The idea for the Jelly Bean Jar Experiment comes directly from the excellent video The Power of Markets.

This video quickly explains why guessing which direction the market will go in the short run is not a successful strategy for investing. The endless guessing only increases anxiety and stress.

Related: Do You Know Your Biggest Risk?

Don’t Let a Punch Knock You Out

Famed boxer Mike Tyson once said “everybody has a plan until they get punched in the nose.” There’s a lot of simple truth in those words. One of the foundational reasons for creating a financial planning perspective is to be able to take a punch without falling down. You need to be able to stay with your plan in order to obtain the positive longer-term returns from the market.

Market pundits and the financial media offer their rationale for what occurs each day in the markets, but in reality, most of these explanations are simply pulled out of the air.

The stock market is really a mechanism for processing information. Every sliver of available public information is constantly being assessed and analyzed by millions of investors and prices move based on those expectations. The collective wisdom of all these buyers and sellers is the best indicator of value.

The Power of the Collective

The more that you understand the power of all the millions of market participants, the greater the chance you will stay with your plan when temporary declines occur. We know that there will be days, weeks, months, and even years where you want to leave the ring.

A plan based on your most important goals creates resilience so that you can pay attention to the longer term and regain focus.

The most reliable strategy for achieving the long-term above-inflation returns from the market is to remain invested in all market conditions. This doesn’t mean that you can’t make tweaks to portfolio holdings from time to time, but the main reason investment market returns dwarf individual investor returns is jumping in and out.

Embrace and utilize the power of the markets. Start there. Ready for a real conversation?

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