The Wolf of Wall Street and recent stock market turbulence

The Wolf of Wall Street and recent stock market turbulence

Early on in the film The Wolf of Wall Street, Leonardo di Caprio is taken out for lunch by a colleague who gives him the following advice:

“OK, first rule of Wall Street – nobody – and I don’t care if you’re Warren Buffett or Jimmy Buffet – nobody knows if a stock is going up, down or ******* sideways, least of all stockbrokers. But we have to pretend we know.”

The last sentence is the key one. For a lot of people, their salary depends on them pretending to know what the stock market is going to do next and convincing other people of this.

But as the aforementioned Warren Buffett has so wisely said:

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

People are notoriously bad at predicting the future, particularly the economic future. Forecasts are always being revised because, well, things happen. Stock markets react to news and news, by its very nature, is unpredictable (that is unless you are party to market sensitive information, but then that is insider dealing, illegal and another matter altogether!).

The FTSE100 has fallen from a recent high of 6,872 on 19 September to 6,103 on 16 October, a fall of just over 11% in four weeks. This is not unprecedented by any means and should not overly alarm long-term investors in diversified portfolios. If anything, this is a buying opportunity – there’s a sale on at the stock market!

Markets have historically always rewarded long-term, patient investors. The two key points there are the words long-term and patient. Consuming too much news about markets is unlikely to be healthy for you and certainly not for your portfolio. It tends to make people impatient and make emotionally charged, bad decisions.

As I have asked rhetorically before, what would Dr Spock to right now? I think he might sell some bonds and buy some more equities. And if he has some cash he might invest that in equities too. The last thing he would do is sell his equities in a fear driven panic. He wouldn’t pay too much attention to the news and he certainly wouldn’t watch Squawk Box on CNBC!