Post 6 - Short Term vs. Long Term
05 Aug 2025 15postsin30days · stock-marketI hope you have not been following the news. I have not been following it at all, nevertheless, it is very hard to completely shut off the influx of daily happenings from everywhere. One such daily happening is the back-and-forth about a strange thing called “tariffs.” Let’s assume that you know very little about what it is. The only thing that you could take away from the breathless coverage of every flip, backflip, and reverse-backflip, is that tarrifs are bad, wanting to impose them is bad, but also good in some cases, but mostly bad in most cases, except that one case … You get the point: They are a complex subject which can not be covered in a 5 minute article or a 20 second AI-generated summary of that article. This constant influx of information convinces some people that they have to do something, which they use to invest in the stock market. These short-term plays have never meant much for the average retail investor: Bogle’s book expresses that argument eloquently and succinctly.
The TV show Veep captures the illogical nature of this well in a sequence from Season 4:1 The main character tweets something mistsakenly; her opponent starts criticizing her for this mistake; she decides to blame hackers from another country for this tweet in order to distance herself from the blame; Opposition parties goad her into a real response for this apparent hack (they don’t know the truth!); she imposes sanctions on the other country! The fact that this was all a farce was lost in just one cycle, even on her: She was the one who started the whole thing.
This is precisely how news probably works; someone says something, it gets repeated on TV, everyone grabs onto it and attempts to reduce the standing of the person who said it, so the person who said it responds, and so on … As they employ full-time professionals to market everything that they say, maintain their “image” among the public, and respond to everything that everyone else says, this cycle continues unabated. The news media will report these constant volley of responses with as little context as possible, for as short a time as possible, because people get really bored of watching the same thing over-and-over again. It is amusing to watch this cycle in action. But it is horrifying to watch people buying into the insights and losing money over it.
I have always wondered: Who sells their holdings during the dip? Do the people who sold their holdings really believe that their holdings would never regain their value? Or rather, the technically correct way of putting that would be, (I think) do the sellers believe that the inflation adjusted rate of return on their holdings would be negative due to this single adverse event or announcement?
It seems strange to invest in something that is so fragile: If a single unexpected thing can tank the overall growth of 500 companies forever, then those companies were not very good in the first place. This is obviously not the case. But somehow, the stock market crashes and people always sell during these “mega-announcements.” It happens during elections: Assume that a political party is expected to win the election by pollsters (We’ll come to them later.) Every possible outcome produces an outsized response:
- If the party wins in a landslide, market goes up: “No one expected a landslide that big!”
- If they win marginally, market goes down: “No one expected the election to be so close”
- If they win but the government is formed through a coalition, market goes down: “No one expected a coalition government.”
- If they lose, “No one expected them to lose!”
Clearly, if the rate of growth of a company’s profit depends on a single party being in power, maybe don’t invest in the company and drive up its stock in the first place?
I see the problem as being an overall information overload about the short-term, and a perfect information void about the long-term: The importance of events that happened today are elevated to a point where everyone starts believing that they are actually significant. There is a complete lack of information about the long-term, which might act to counter balance the short-term fears and panic.
Let’s see the headlines for a single story from the day that the “big” announcement was made to today, at monthly intervals:2
This is hilarious. All I did was run the search: site:nytimes.com on:2025-04-02 for a few months,
pick a few random headlines, and replace all identifiers from the headlines. This is complete
chaos. Also, it is completely pointless to follow this on a daily basis: NOTHING HAS HAPPENED YET!
This can not be stressed enough. Following this on a daily basis, you might think that something
that happened today is important. But if you wait another week, 10 other things would have happened
which were actually more important.
I have taken the worst possible example here, one in which the headlines are a result of intentional attention seeking. News people will cover the same subject for a long time only if there are many new twists and turns to “explain” and “break down.” So, like reality TV shows do routinely in their later seasons, when they are no longer able to come up with new ideas for twists and turns, you start introducing arbitrary changes, which are intentionally designed to increase the drama, but in reality, end up making the show boring, tiring, and contrived; acting to take out the essense that people were watching the show for in the first place. That’s what happened with the above story too: Now, analysts have started saying that the market has discounted the effect of anything happening already and these announcements will continue to have less and less of an impact. That is just another way of saying that no matter what announcement comes, no one thinks anything real is going to happen, so they just ignore it and go about their work as usual.
What about the people who sold on the day of the first announcment, 2025-04-02? To put it bluntly, they lost big time.
If the problem is the short-term, what do you do? Is there something else to read instead? No. That’s my opinion; let me know if there is something to read about the long-term. The best I have found are magazines, but even those have started focusing entirely on the short-term. There are textbooks and non-fiction books which explain concepts, but do not connect it back to relatively recent events. There are non-fiction books that examine a past market frenzy, but none is timely enough to read right now. There is fiction which creates arbitrary situations and tries to show the consequences. There are documentaries which explain what happened exactly, but not what is happening since then.
There is no form of media that takes the happenings of the past year, puts it all together, and gives us a balanced prediction for the future. This is something that one must come up with by oneself. Obviously, that’s not possible: No one has all the required ingredients: the resources to get all the data, the expertise required to analyze it, or the time to do it. If you have the expertise, you’re probably doing it as a job anyway and don’t want to spend your free time doing it. If you have the data, then you probably only care about getting the data and not about analyzing it. If you have the time, well, you can get the expertise but you may not have the money because you have time … etc.
There are forecasts from investment banks. I wonder how reliable they are. Putting together past forecasts and comparing them against actual index performance is time consuming, I have tried to do this but basically, these investment bank reports are private. The only way that the public knows about these reports is through reports from financial newspapers. It would not be in the interest of the financial newspapers to compare the investment bank forecasts against reality and show that they are doing poorly, if that is the case. If they are doing well, there’s no point in bragging, because all the investment banks are probably performing at the same level. Right?
So, the only way is to manually comb through articles and find the article that matches. These articles don’t mention the methodology for comparison with real performance either: They just say Index A is forecasted by Bank B to be at Level C in month M of year Y. How could you compare it to the real performance? The 30-day moving average at the end of that month? Maybe. Getting that data for the index you’re tracking in a way that’s easy would be a bit of a task, but nowhere near as difficult as assembling the predictions for an index A from bank B over the past several years at various points during the year. So, these forecasts might be part of the short-term information overload too, existing only to convince the clients of the investment bank to use a strategy that the investment bank is pushing at the moment that the report was written.