Originally published in The Huffington Post, October, 18th 2016
Investing intelligently and responsibly requires the ability to ignore the daily noise.
If you’re a regular reader of my blog posts, you know I espouse “evidence-based” investing. This term refers to investing supported by peer-reviewed articles in respected financial journals. Most objective observers agree that investing in a globally diversified portfolio of low management fee index funds, in an asset allocation suitable for you, is “evidence based.” Relying on self-appointed financial pundits to pick outperforming stocks, time the market or select the next “hot” fund manager, is not.
The benefits of meditation
In other aspects of my life, I also pay attention to the evidence. A number of years ago, I reviewed the data supporting the practice of meditation, and found it compelling.
For those not familiar with meditation, a good place to begin is an excellent book by Jon Kabat-Zinn called Full Catastrophe Living. I summarize many of these studies in the bibliography of my book, How the 2016 Presidential Election Could Affect Your Investments. It featured the musings of “experts” giving their views about how the outcome of the election might affect investors.
A far more responsible analysis was provided by Dimensional Fund Advisors in an issue brief not available publicly. It urged investors to ignore the “steady stream of opinions from pundits and prognosticators about how the election will impact the stock market.” Instead, it advised investors not to try to “outguess” the market and cautioned that “it is unlikely that investors can gain an edge by attempting to predict what will happen to the stock market after a presidential election.”
Jim Cramer provided another example of short-term, counterproductive advice in an article in which he told investors when to sell a “hot stock.” He omitted to notehis dismal stock picking track record. His viewers would have been better off in a fund that simply tracked the S&P 500 index, rather than following his “Action Alerts PLUS” portfolio for the period from 2001-2016.
When your mind is agitated and buffeted by this kind of irresponsible, discredited advice, it’s difficult to focus on long-term data that could enhance your returns. In their new book, Your Complete Guide to Factor-Based Investing, Andrew L. Berkin and Larry E. Swedroe, the authors note that, from 1927-2015, the U.S. “market beta premium” (defined the difference between the annual average return of the total U.S. stock market and annual average return of the one-month U.S. Treasury Bill) has been 8.3 percent.
This means that investors who simply held an index fund that tracked the U.S. stock market during this time, and didn’t bounce in and out of market reacting to the views of pundits like Cramer and others, most likely outperformed those who did.
The bottom line
Here’s the bottom line: Investing intelligently and responsibly requires the ability to ignore the daily noise. Those who meditate are better able to engage in this process than those who don’t.