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Market Traffic Jam

Traffic—I hate it and I don’t believe there are many people that enjoy a nice bumper-to-bumper ride into the office.

To me, there are two ways for traffic to build up: an accident (I include roadwork here as well) and just congestion. I completely understand how an accident/roadwork can lead to traffic, but the routine congestion is what tends to make my head spin a little more.

Yes, I understand that a lot of cars on the road at one time will cause traffic because there are only so many lanes and that each car takes up “x” amount of space on the road. What gets me (and try to follow me here) is when you are driving at a great pace then are forced to slow down due to the buildup, which then leads to bumper-to-bumper traffic; and throughout this period, the number of lanes is the exact same.

So, we continue to inch forward in the bumper-to-bumper traffic at a snail’s pace and not many cars are exiting the highway, but 20-30 minutes later (two-three miles traveled if we are lucky in Atlanta) and the traffic starts breaking up a bit. Our speed goes from 10-20 miles per hour to 35-45 miles per hour and then back to the speeds that are needed to allow for the wind to blow through our hair.

Through all of this congestion, nothing really changed from beginning to end. No new lanes were added, an exiting of cars didn’t exist and surely new drivers didn’t just pop into the driver’s seat. That’s what boggles my mind.

Now markets can boggle investors’ minds as well, but there is a relation between markets and traffic.

We can classify (to make things simple) pullbacks in the markets into two categories: global events (terrorist attacks, company defaults, etc.) and then orderly breathers.

Global events causing market to decline is understandable. These events make people second-guess views/theories on the world along with questioning their personal safety and also the safety of their monies.

Market pullbacks not spurred by big events are sometimes less understandable. Yes, the media may try to tie in one event here or there as to the cause of the market pullback, but at times they are far reaching.

We tend to not know the exact cause for such a pullback until it’s over and we can look back on it. These market pullbacks tend to work themselves out. Investors build in new information into their expectations and markets adjust to a price that again attracts buyers, thus leading to another market rise. Speaking of markets moving higher, there are times that these run-ups are similar to traffic because they too can be tough to explain until later on when news is released.

From what I know, we have never seen a traffic jam on I-10 extend from Jacksonville all the way to Los Angeles; rather, the traffic ultimately lightens up and we look back to determine what was the root cause.

I think that investing is very similar. We have yet to see that market pull back that never ended. Weathering the markets’ ups and downs has proven to be the best to get us to our longer term goals. Being able to psychologically endure the traffic that we encounter along the way will allow for us to look back at those traffic jams years from now and smile rather than pout.

(Any data used was provided by Ned Davis Research)


 

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