Future Testing

Much financial news purports to be about the future but is really just an account of the past. As a result, many investors project what has already happened onto an imagined future. There’s another way of framing this problem.

It’s understandable that investors, with the help of a necessarily short-term-focused media, will tend to focus most of their attention on what has happened in financial markets in the past month, week, day, or even hour.

When stocks have fallen heavily in price, for instance, this is routinely reported as, “More bad news for investors today...” In fact, unless you plan to liquidate your portfolio that particular day, it is unlikely to be bad news at all.

The media could just as easily say, “Stocks went on sale today, as falling prices offered investors higher expected returns...” If you are a long-term investor, the key issue is how your portfolio performs from now on, not what happened yesterday.

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