Microscopic Investing: Your Biggest Mistake?

‘Don’t sweat the small stuff.’

This is a classic American phrase.

It’s such a simple yet profound idea, isn’t it? It means you shouldn’t spend your time stressing over minor issues. Instead, you should broaden your mind. Focus on the big picture. Just get on with it.

After all, this is how progress is made. This is how victories are achieved. This is how mountains are conquered.

And yet…tragically…we live in a world where people will *always* sweat over the small stuff:

• Part of it is because of our 24/7 news cycle. It spoon-feeds us with angertainment and culture wars. A never-ending stream of it. This means that issues that are relatively minor become amplified to the point of insanity.

• Another part of it comes down to basic human psychology. All of us have a negativity bias. This means we tend to maximise the bad and minimise the good. We tend to blow a lot of stuff out of proportion.

Source: Image generated by OpenAI’s DALL-E

All this has led to something that I like to call ‘microscopic investing’:

• We get stressed over every fluctuation and gyration in the market.

• We get stressed over every geopolitical rumour and hearsay.

• We get stressed over every breaking story delivered through multiple devices — smartphones, tablets, computers.

• In fact, we get so stressed that we become paralysed. With doubt. With indecision. We become microscopic in both outlook and behaviour.

• Good grief. Is this actually distorting our sense of reality?

Well, hold on. Let’s hit pause on the microsope for a moment. Let’s zoom out. Now, here’s what the macro picture for the market actually looks like this over the long-term:

Source: A Wealth of Common Sense

• In the grand scheme of things, the little red blips are just that: little red blips. These drawdowns may grab exaggerated media headlines. They may cause emotional distress. But, really, these drawdowns are quite minor and fleeting. They happen roughly 30% of the time.

• Meanwhile, it’s the rising blue pillars that people should be paying more attention to. These upswings happen roughly 70% of the time. The trend lines are strong and solid. But — gosh — they are easy to miss. It’s because people tend to be so obsessively microscopic.

• For example, everyone talks about how the S&P 500 plunged over 50% during the Global Financial Crisis that lasted from 2007 to 2008. Traumatic, yes. But no one talks about how the S&P 500 rose over 500% during the long bull run that followed from 2009 to 2021. Strange, isn’t it?

So…let’s take a breath. Let’s take a step back from the mental abyss:

• Ask yourself: are you being led astray by angertainment in the media?

• Ask yourself: is the microscope distorting your vision?

• Ask yourself: what is it really costing you?

Of course, seeing the big picture can be difficult:

• We live in a very impulsive world. The micro overpowers the macro. And, tragically, most people will never become disciplined investors. This is because they are so reactionary. They react without any deep understanding of why they react. That’s their biggest flaw.

• Charlie Munger says this: ‘Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.’

• Wise words. So, start working on your skill for deferred gratification. It’s not easy, though. This is a skill that might take you an entire lifetime to master.

• ‘Don’t sweat the small stuff.’ It’s not just a slogan. It’s a philosophy with profound consequences for the rest of your life.

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Regards,

John Ling

Analyst, Wealth Morning