The First Question To Ask When A Markets Expert Speaks

Liz Ann Sonders, chief investment strategist at Charles Schwab, compiled an outstanding list of quotes from history’s investing legends. (I recommend reading her post from start to finish.)

One quote that stuck out to me came from Edwin Lefevre, author of “Reminiscences of a Stock Operator”:

Speculators buy the trend; investors are in for the long haul; 'they are a different breed of cats.' One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.

Some people try to make money trading the stock market over short-term periods. Some aim to build wealth by investing in the stock market over long, multi-year timeframes. Many do some combination of both.

All of these people seek out information and insights that might help them get an edge and improve their returns.

Unfortunately, trading tips and investment advice come with a lot of the same jargon that make it easy to confuse the two if you’re not paying careful attention.

When a markets expert starts talking, the first question you should ask is: “What is the timeframe?”

Is it one month? One year? Several years? One day?

Why? Because it’s possible that the same person who’ll tell you stocks will fall in the coming weeks will also tell you they expect prices to be higher in the coming years. In fact, I can almost guarantee you that the Wall Street strategists who expect the S&P 500 to fall this year will also tell you it’ll be much higher in three to five years.

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All this relates to Step 4 of TKer’s “5-step guide to processing ambiguous news in the markets and the economy”: “Beware the motivations of those communicating the information.”

The hot shot hedge fund manager on financial TV may present a compelling, eye-catching case for why the stock market could tumble from here. However, reporters don’t always follow up and ask what to expect when you stretch the timeframe, which may be more relevant to long-term investors. This lack of temporal context is common in the news industry, which tends to focus on the recent past and the near future.

This doesn’t mean that investors should completely ignore what the pros are saying about what could happen in the coming weeks or months. While expectations for volatility in the near-term might not affect how you position your long-term investments, they can serve as valuable reminders to keep your “stock market seat belts” fastened.

After all, the odds that stocks fall are relatively high when you look at short timeframes.

Over short time frames, the odds of negative returns are relatively high. (Source: @BespokeInvest)

As my friend Joseph Fahmy says: “The majority of arguments on FinTwit have to do with timeframe. One person could be selling a stock because they think it will go down over the next 2 days and another could be buying because they think it will go up over the next 2 years. Don't assume everyone trades like you.”

FinTwit, the community of people posting about finance on X, sees lots of heated bulls vs. bears debates about markets that come to no resolution. And it’s often the case that one side may be making the case for a short-term trade whereas the other side is making the case for a long-term investment — but the two sides aren’t aware of the disconnect. They’re not necessarily in disagreement; they’re just arguing about different things.

Zooming Out

TKer Stock Market Truth No. 1 says: “The long game is undefeated.“ In other words, the stock market usually goes up over time.

Meanwhile, TKer Stock Market Truth No. 2 says: “You can get smoked in the short-term.” That is to say long-term investors should be prepared to experience a lot of sell-offs on the way up.

When I compiled this list of truths, I deliberately put these two next to each other because I wanted to make clear that bearish market developments can occur within a bullish long-term framework.

All of this is to say that it’s possible to be bullish and bearish simultaneously. The nuance is in the timeframe.