11 May 2012

Today's Market is Like Navigating Rome

The market continues to be incredibly volatile. Within weeks we get as much movement up or down as some generations saw in a typical year. 

Only there about four days, I never did get a good feel for Rome's roads. They curve, they change direction, change name ... do just about everything except run straight, in the grids that I'm used to here in California. And in this I got a new metaphor for the market. 

The advice used to be to buy and hold. If you want to get to your retirement destination, you find where you want to be on the grid and you navigate a fairly straightforward route. "Go down to 3rd St, turn left, and then follow it to B. You've arrived." Or, buy 85% stocks when you're young, gradually change that percentage downwards as you age, and then put most of it into bonds when you retire." 

In today's market, it is not nearly as obvious what will work. Companies rise and fall within a decade or two. The sure deal of a Microsoft or Apple becomes a stagnant stock that doesn't move. Meanwhile, the market is full of promise and danger, as sometimes sectors that once moved separately now move in tandem (domestic and international stock, for instance), and other sectors that once moved together now diverge. Today's market is more like navigating Rome than the stereotypical American town. In Rome, if you want to move in a straight line, you are forced to take numerous turns. There are no straight lines; you have to create them by frequently changing. 

We've moved from the modern American city to ancient Rome. I guess this is supposed to be progress. To me, it just feels more confusing. 

[Blog author acknowledges that while this metaphor may be descriptive of a change in how markets now behave, this description offers nothing in the way of practical advice.]

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