Thriving in the Stock Market: Embracing the Ups and Navigating the Downs
In a recent article published by the Financial Times, the focus was on the investment decisions of Carl Icahn, a renowned American financier, who incurred significant losses by betting against the stock market. Over the past six years, Icahn's bets against the market amounted to a staggering $9 billion.
In the Financial Times interview, Icahn candidly admitted, "I've always told people there is nobody who can really pick the market on a short-term or an intermediate-term basis. Maybe I made the mistake of not adhering to my own advice in recent years. You never get the perfect hedge, but if I kept the parameters I always believed in...I would have been fine. But I didn't."
While acknowledging his own accountability, Icahn also attributed his misfortunes to the actions of the Federal Reserve (Fed). He stated, "I obviously believed the market was in for great trouble...the Fed injected trillions of dollars into the market to fight Covid, and the old saying is true: 'Don't fight the Fed'." Regulatory findings revealed that Icahn had wagered against securities worth over $15 billion, underscoring the scale of his activities. Despite Icahn's reputation as a billionaire investor, it is clear that his financial instincts failed him on this occasion.
Financial analysts will now use Icahn's struggles as evidence to support the notion that while markets undergo occasional corrections, the stock market, in general, experiences growth. A cursory examination of historical data since the end of World War II confirms this pattern. In the span of 83 years, there have been only 13 bear markets, occurring approximately once every six years on average. Moreover, the stock market has witnessed declines of 30% or more on just four occasions, and a crash of 50% has occurred only three times. While stock markets are renowned for their volatility and unpredictability, the data indicates that major calamities are rare and should not form the foundation of one's financial investments.
Although the narrative of perpetual stock market crashes may seem appealing, the evidence overwhelmingly supports the notion that the stock market tends to grow. Continuously maintaining a negative bias against the market year after year, as Icahn's substantial losses demonstrate, is a low probability bet. When examining the US stock market since 1926, this trend becomes even more evident:
Of course, it is impossible to guarantee that the stock market will consistently grow, as its nature inherently lacks certainties. However, when making investment decisions and hedging bets, one must consider probability and reason. Both factors indicate that persistently betting against the stock market is a risky and unwise choice. While it is true that gains can be made from betting against individual stocks or the market as a whole, accurately predicting when crashes will occur is an immensely challenging task.
It is equally important to prepare for the potential upside of the stock market, as it tends to experience growth more often than contraction. At JA Wealth Advisors, we possess the expertise to help you navigate the complexities and volatility of the stock market. Most importantly, we will ensure that your investment portfolio is optimally positioned to capitalize on the opportunities for growth that the stock market consistently presents.
