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How to Stop Worrying and Love a Falling Stock Market How to Stop Worrying and Love a Falling Stock Market
(8 days later)
When the stock market falls as far and as fast as it has in the last three weeks, it is perfectly natural to be terrified.When the stock market falls as far and as fast as it has in the last three weeks, it is perfectly natural to be terrified.
It requires a leap of faith just to place hard-won savings in such an abstract, ephemeral thing as a share of stock or an exchange-traded fund. Instead of spending on something concrete that can be enjoyed immediately, investing means putting money into what is, ultimately, a notation in a brokerage account displayed on a computer screen.It requires a leap of faith just to place hard-won savings in such an abstract, ephemeral thing as a share of stock or an exchange-traded fund. Instead of spending on something concrete that can be enjoyed immediately, investing means putting money into what is, ultimately, a notation in a brokerage account displayed on a computer screen.
And now, in just a handful of days, a meaningful chunk of it has been wiped out. If your primal brain sees that and wants no part of the stock market anymore, it is completely understandable.And now, in just a handful of days, a meaningful chunk of it has been wiped out. If your primal brain sees that and wants no part of the stock market anymore, it is completely understandable.
It’s also probably a mistake, assuming the question involves long-term savings. People have a tendency to move money out of stocks after steep drops, but often fail to jump back in quickly enough when the market finally bottoms out.It’s also probably a mistake, assuming the question involves long-term savings. People have a tendency to move money out of stocks after steep drops, but often fail to jump back in quickly enough when the market finally bottoms out.
There’s a way of thinking about stocks that can help you avoid that fate. It’s a mental trick that makes it easier to stomach those terrifying days when your 401(k) plunges. And it has roots in the math of what you’re buying when you invest in the stock market.There’s a way of thinking about stocks that can help you avoid that fate. It’s a mental trick that makes it easier to stomach those terrifying days when your 401(k) plunges. And it has roots in the math of what you’re buying when you invest in the stock market.
When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time. When you buy a broad index mutual fund or E.T.F., you are essentially buying a share of the future profits of all major corporations.When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time. When you buy a broad index mutual fund or E.T.F., you are essentially buying a share of the future profits of all major corporations.
The way those profits will be delivered to your pocket will vary. Some of it will be paid directly to you in the form of a dividend. Some will be held by the company or used to buy back shares, which materializes in the form of a higher stock price. And some will be reinvested by the company’s managers to drive growth.The way those profits will be delivered to your pocket will vary. Some of it will be paid directly to you in the form of a dividend. Some will be held by the company or used to buy back shares, which materializes in the form of a higher stock price. And some will be reinvested by the company’s managers to drive growth.
We may not know exactly how much money big companies will be making in a decade or two, or what technologies and business strategies they will use to make it, or which companies will account for more or less of that total than they do now. We don’t know how severe a potential coronavirus outbreak this year will be, or how long it will last, or how it will affect the near-term performance of corporate America.We may not know exactly how much money big companies will be making in a decade or two, or what technologies and business strategies they will use to make it, or which companies will account for more or less of that total than they do now. We don’t know how severe a potential coronavirus outbreak this year will be, or how long it will last, or how it will affect the near-term performance of corporate America.
But if you look over the sweep of history, one lesson is clear: Earnings tend to rise over time, as the world economy grows. However, the price an investor has to pay to get a slice of those earnings can swing wildly, much more so than any plausible forecast of that long-term future does. And rarely has that been more true than in the last three weeks.But if you look over the sweep of history, one lesson is clear: Earnings tend to rise over time, as the world economy grows. However, the price an investor has to pay to get a slice of those earnings can swing wildly, much more so than any plausible forecast of that long-term future does. And rarely has that been more true than in the last three weeks.
“Earnings have been hugging a trend since 1950,” said Robert Shiller, a Yale economist and Nobel laureate. “The market tends to be more volatile than the earnings. So there’s something going on other than the forecasting of future earnings.”“Earnings have been hugging a trend since 1950,” said Robert Shiller, a Yale economist and Nobel laureate. “The market tends to be more volatile than the earnings. So there’s something going on other than the forecasting of future earnings.”
And that something is the cycle of ebullient optimism and abject fear that we often find in financial markets.And that something is the cycle of ebullient optimism and abject fear that we often find in financial markets.
Which condition applies at any given moment involves a lot of factors. It’s mostly psychology (are people feeling more greedy or more fearful?) combined with some high-level macroeconomics (is there a glut or shortage of global savings?), with some mechanics of financial markets tossed in (are big hedge funds being forced to sell shares to meet other financial obligations?).Which condition applies at any given moment involves a lot of factors. It’s mostly psychology (are people feeling more greedy or more fearful?) combined with some high-level macroeconomics (is there a glut or shortage of global savings?), with some mechanics of financial markets tossed in (are big hedge funds being forced to sell shares to meet other financial obligations?).
The moments when sentiment shifts from optimism to fear, like the last few weeks, are scary when you have an accumulated pile of savings declining in value. But it also means that the value you’re getting on any future earnings has increased.The moments when sentiment shifts from optimism to fear, like the last few weeks, are scary when you have an accumulated pile of savings declining in value. But it also means that the value you’re getting on any future earnings has increased.
Typically, stock analysts think of valuations in terms of the price-earnings ratio, but it can be clarifying to invert it. So, for example, at the record market high on Feb. 19, this earnings-price ratio was 3.1 percent for the S&P 500, meaning that every $100 invested in an S&P index fund bought interests in companies that accounted for $3.10 in profits over the previous year.Typically, stock analysts think of valuations in terms of the price-earnings ratio, but it can be clarifying to invert it. So, for example, at the record market high on Feb. 19, this earnings-price ratio was 3.1 percent for the S&P 500, meaning that every $100 invested in an S&P index fund bought interests in companies that accounted for $3.10 in profits over the previous year.
Updated June 24, 2020 Updated June 30, 2020
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.
A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
With the sell-off through Thursday, that number had risen to 4.2 percent — last year’s earnings were unchanged, but it was a lot cheaper to buy a share. In the same span, though, the yields on longer-term Treasury bonds fell sharply. A 10-year bond paid 1.43 percent on Feb. 19 and 0.45 percent at Thursday’s close.With the sell-off through Thursday, that number had risen to 4.2 percent — last year’s earnings were unchanged, but it was a lot cheaper to buy a share. In the same span, though, the yields on longer-term Treasury bonds fell sharply. A 10-year bond paid 1.43 percent on Feb. 19 and 0.45 percent at Thursday’s close.
Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago.Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago.
Wait, you might say. These are scary times, with the possibility of a recession, widespread bankruptcies and economic upheaval.Wait, you might say. These are scary times, with the possibility of a recession, widespread bankruptcies and economic upheaval.
This is all true. But those extra 3.8 percentage points are the compensation you are receiving for keeping an even keel and taking a long view — for being willing to ride out whatever disturbances the next year or two may hold.This is all true. But those extra 3.8 percentage points are the compensation you are receiving for keeping an even keel and taking a long view — for being willing to ride out whatever disturbances the next year or two may hold.
The fact that stocks are extraordinarily volatile right now, in that sense, isn’t a problem with stock investing — it’s a feature! If it weren’t for these periods of fear, stocks would trade at levels that offer returns more like bonds or cash. The fancy academic name for this is the “equity risk premium,” but an ordinary saver can simply think of higher long-term returns as the compensation you receive for tolerating volatility.The fact that stocks are extraordinarily volatile right now, in that sense, isn’t a problem with stock investing — it’s a feature! If it weren’t for these periods of fear, stocks would trade at levels that offer returns more like bonds or cash. The fancy academic name for this is the “equity risk premium,” but an ordinary saver can simply think of higher long-term returns as the compensation you receive for tolerating volatility.
It’s a good reason not to keep savings that are needed soon in stocks. If you’re looking to pay for a house or car in the short term, that money probably shouldn’t be in an asset that can lose 10 percent of its value in a single day, as stocks did on Thursday.It’s a good reason not to keep savings that are needed soon in stocks. If you’re looking to pay for a house or car in the short term, that money probably shouldn’t be in an asset that can lose 10 percent of its value in a single day, as stocks did on Thursday.
But for retirement or other long-term savings, the sensible approach is to set an asset allocation that makes sense for your level of risk tolerance and stick to it. And then think of the sell-off of the last few weeks as the kind of episode that isn’t so much something to fear, but a moment of opportunity — even if an unnerving one.But for retirement or other long-term savings, the sensible approach is to set an asset allocation that makes sense for your level of risk tolerance and stick to it. And then think of the sell-off of the last few weeks as the kind of episode that isn’t so much something to fear, but a moment of opportunity — even if an unnerving one.