Something good out of a bad situation: Let this mindset boost your investing morale!
Every Wednesday, we publish articles related to the investment world. Our goal is to help you strategically think about your life choices and financial decision-making through the tips, insights, and coaching comments that we share. In this article, we’ll focus on finding “silver linings” in our current economy. Keep reading to learn how this mindset can help improve your morale and investment approach.
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Something good out of a bad situation: Let this mindset boost your investing morale! Silver lining. —something good that can be found in a bad situation (definition from Britannica Dictionary). Have you ever experienced silver linings in your business, career, or personal life? As what the definition above implies, not all bad situations are entirely bad. Sometimes, they’re “blessings in disguise” and if you take a closer look at such instances, you’ll see something good can still come out of them. Let’s apply this concept in investing… In a past “The Independent Investor” article, we talked about the importance of thankfulness in investing and the benefits of being a “thanks-giver” in one’s financial life. These include:
… and more. Now, you might be wondering: “What does thankfulness have to do with silver linings?” The answer to that question is simple: Finding silver linings often leads to gratitude. For example: Christopher failed to meet the minimum requirement for a course he wanted to take because he procrastinated and dedicated more time to playing video games. If there’s a silver lining to his situation, it’s that he realized he should be exerting enough effort to get what he wants in life. Sure, no one would want to be thankful for failing a school project… and we’re not invalidating that negative emotion (feeling bad about failing) either! However, if you look at the bigger picture, that experience enabled Christopher to realize his mistakes and do better as a student. Through it, he was able to realign his priorities with his goals and strike a balance between study and play. Isn’t that something to be thankful for? That’s a silver lining! Silver Linings in Investing Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, says it might not seem like investors have much to be thankful for at present. With elevated inflation and high interest rates stifling spending, almost everyone is on the edge of their seats. Do these economic indicators mean all hope is lost? NO. Professor Litman always emphasizes understanding credit is essential to understanding inflation, recession, and the economy… and that’s exactly where he and his team at Altimetry see a silver lining. Based on their analysis, inflation is cresting as the Fed has gotten serious about fighting it. The strategy is similar to what happened back in 1947, when the Central Bank’s actions lowered inflation by over two-thirds in a matter of months. Moreover, the situation is similar to what former Fed Chairman Paul Volcker managed in the 1980s. He raised interest rates as high as 20% until inflation was under control. Nowadays, the Fed’s interest rate hikes are working. Because of these actions, investors are no longer staring down a decade of high inflation and weak economic growth like in the 1970s. Isn’t that a silver lining? While it hurts to pay for bills and other expenses at the moment because of high interest rates, it’s much more bearable compared to experiencing decades-long economic uncertainties. — Professor Litman says it’s actually scary to be an investor at this time. Doom-and-gloom headlines from the mainstream media aren’t making the situation any better. However, today is also an exciting time for investors IF they know where to look! With an open perspective on things, they’ll be able to find silver linings amid volatilities in the stock market. Given the current steps to counter inflation and various events in the finance industry, we can expect to see a sideways equity market for the next 2 years. … but don’t panic! While this type of market is not ideal, it’s far better than seeing stocks tumbling through the years due to greater economic pain. That’s a silver lining to be thankful for! Hope you’ve found this week’s insights interesting and helpful. Stay tuned for next Wednesday’s The Independent Investor! For the past few years, the U.S. Federal Reserve, a.k.a. the Fed, has attempted to stabilize the economy through its fiscal policies. In particular, it put into effect quantitative easing (QE) in March 2020 to stimulate economic activity in the wake of the COVID-19 pandemic. Learn more about how this specific monetary policy impacts both the economy and the stock market in next week’s article! |
