Brian Wiley: Are These Times Extraordinary?

Are These Times Extraordinary?

Most Boiseans will tell you they enjoy Boise’s climate. According to usclimatedata.com, the average annual temperature in Boise is 52.5ºF.  Which means when you mix the nights and the days and the summers and the winters to make an average, the climate in Boise is generally pleasant.  However, I do find when I speak to a native Idahoan, most seem to recall much snowier winters in Boise.  It seems to be inevitable to hear something along with this; “When I was a kid, we used to have snow (measured in feet) on the ground for most the winter.”  So, I decided to do a quick study and found most winter days in Boise are snow-free, and when Boise does get snow, its not usually more than a few inches and melts soon after the snowstorm exits.

So, why the misaligned stories?  I believe it is because we shape more vivid memories based on extraordinary events, then gradually log those memories alongside more normal occurring events.  For example; my son clearly remembers the 8 inches of snow Boise received sometime around November of 2010 and a few other snowstorms in the past 6 years where Boise received more than 6 inches.  His memory is marked with the snow play he grew up having in Boise.  Later in his life, he will likely tell others how Boise used to get deep snow when he was a child.  Being he was young (and not very tall) when the events occurred, I first would question what he perceived as being “deep”.  Nonetheless, no matter how deep the snow really was, those events are, in fact, rare in Boise.

Stock markets are no different.  Many investors recall their emotional experience with past markets rather than the generalized experience.  Yes, the markets sank horribly in 2001-2003 and again in 2008, but the overall trend of the markets is upward.  In fact, compared to most other markets or investment environments, the stock markets are actually quite temperate.  According to MoneyChimp.com the average rate of return over the past 100 years of the S&P 500 index is 8.81%.  But sure, we could focus our memory on the rare days, such as the precipitous fall in the S&P 500 in late 2008.  Yes, it was an epic storm on Wall Street, but that storm does not exemplify the average climate of Wall Street.

Be an investor, not a trader.  An investor looks at the overall trends, a trader looks at each day.  This does not mean an investor needs to be agnostic to extraordinary events.  Rather, an investor prepares for the market’s seasons by using common tools such as dollar cost averaging, diversification, and strategic asset allocation.  An investor remains calm in market storms and remembers the averages will compensate for the extremes.  It does not seem very reasonable to move out of Boise because it snowed a few inches a couple times in a year, nor is it wise to leave the stock markets because they sank a few percentage points a couples times in a year.  This is particularly true when the overall trend is favorable.

Links mentioned above:
1.)  http://usclimatedata.com/climate/boise/idaho/united-states/usid0463
2.)  http://www.moneychimp.com/features/market_cagr.htm
3.)  https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_S%26P_500_Index

Brian Wiley, Financial Advisor
Tree City Advisors, LLC
950 W Bannock St., Suite 1100
Boise, ID 83702
Office: (208) 888-1244
Cell:  (208) 891-8502
www.treecityadvisors.com

Brian Wiley is an Investment Advisor Representative of Tree City Advisors LLC.  Tree City Advisors LLC is an Idaho Registered Investment Advisory Firm.