Picture a little boy running around a cruise ship. Little Johnny runs up the slide, then down the slide. Dives into the pool, then runs over to look over the edge of the ship.
Around and around little Johnny goes. Where he’ll run next is anyone’s guess. If you’re not his parents or in the wake of destruction it might even be mildly amusing.
Little Johnny is like the short-term fluctuations of the market. He’s all over the place and just when you think you know where he’ll run next, he does the opposite. Trying to keep up with him or predict his movements will be an exercise in frustration and futility.
The cruise ship is the long-term market returns. We know it will arrive at its destination no matter where little Johnny runs.
As an investor, you only have two choices. You can either chase around Little Johnny or you can sit back, relax and sip your daiquiri.
Chasing Johnny means you chase returns, get in and out of the market and bet on stocks.
Sipping your daiquiri means you buy and hold low-cost index funds and just enjoy the ride.
Your choice.
