What matters

The US economy slowed a ton, we heard this morning, and America is back full-bore at war. Yet the stock market surged at the opening after a 1,150-point spanking of the Dow yesterday.

This is why you should (a) not own individual stocks, (b) not look at your portfolio value every day – or even weekly (or monthly) and (c) stop watching BNN or reading dodgy financial blogs. Especially ones with dogs on them.

The world is volatile. Get used to it. The most powerful human on earth is crazy. The richest one is, well… he’s kinda nuts, too. The globe’s most fearsome military is having a hard time dealing with a third-rate, bombed-out country with no air force or navy left. It’s also running out of ammo. Embarrassing. Europe’s on fire. The Gulf war is spreading. And what are governing Republicans in America obsessed with? An 85-year-old public health official they want to blame for Covid six years ago.

Of course stock markets don’t care much for that stuff. It’s all about money. So why did things crash hard on Wall Streat yesterday and even harder in Korea? Does it matter?

Investors don’t get fussed much by war, but the rising oil prices the Iran conflict brings are worrisome. That begets inflation. Inflation brings higher interest rates. They impact consumer spending and corporate earnings. That brings down stocks.

The 2% drop in the Dow (and 1.5% in the S&P 500) came after the Fed decided to hold rates steady. No surprise there, but a meaningful number of CB governors objected and voted for an increase. That’s highly unusual. Investors took it as a signal Fed insiders are getting amped by inflation and rates will truly rise soon. Like in September (odds are now 57% for a quarter-point jump then).

Cue then bond market.

Debt-holders are forcing yields higher because they smell that inflation coming. Long-term bond returns have jumped to multi-year highs with the 30-year Treasury yield at the most elevated point in almost two decades. As those yields swell (nearly 5% return on a 10-year issue) these low-risk assets start looking sexy to investors who think stocks are too wonky, over-valued or unpredictable. Money is sucked from equities to debt.

There’s more. AI, of course.

Tech, semis and frontier labs have powered the market for months, sending P/E ratios into orbit. But adults are back in control now. AI stuff is selling off and people are wondering if sectoral spending of $1 trillion or so on data centres, chips and compute will ever be recouped by bottom-line profits.

So there’s a rotation happening -= money flowing out of the tech stuff and back into boring things, like banks. And construction companies. Consumer staples. Defence.

This brings is to poor Korea.

The KOSPI in that country has dropped 44% from its peak way back in June (seriously) and crashed 10% on Wednesday, leading to a government shut-down of the exchange for a couple of days. It’s a loss of maybe $2 trillion, and led to an absolute nightmare for investors who used leverage to jump in.

Korea is all about chips (and K-pop). Just two companies – Samsung and Hynix – came to constitute half the entire stock market capitalization. All it took for the exits to be jammed was for Hynix to post less-than-wonderful earnings amid worries AI has been hyped. In the past month both these companies have lost close to half their market worth. Yikes.

Meanwhile the genius regulators allowed 2x one-stock leveraged ETFs to be marketed, tied to Samsung and Hynix. Investors responded by chunking in almost $20 billion – so when share prices tanked the losses were doubled, and investors panic-sold amid margin calls, shredded portfolios and spouses who yelled, “You did what??”

The lessons here are ones we keep repeating.

Invest for the long-term – with your eye on a life goal (retirement, buying a house, educating kids, a Harley) – and not on ’winning’.

Always be diversified, which means eschewing individual stocks in favour of ETFs – but never the leveraged kind.

Be balanced, including preferred shares, bond funds and REIT exposure in your portfolio. These assets can turn out consistent income and be a counterweight to equity gyrations.

Ignore your portfolio once it’s properly B&D. Rebalance it maybe once a year, selling off winners and buying losers to harvest gains and restore balance. Yes, that’s opposite to what most people do. But you know better.

Don’t hang onto something just to avoid paying capital gains tax when you sell. (Of course, stuff all your tax shelters, but you and your squeeze should also have a joint non-reg account.)

Invest when you have money, not when some suit on TV or online influencer tells you to.

And when you get old, spend it all.

Wasn’t that the point?

About the picture: “I am by no means a dog person,” writes Michael from Toronto, “but Sawyer and I get along. He is a Rottweiler/Corgi mix with nice colouration and very short legs. He lives with my grandson and his family. Here he is enjoying a favourite stick in the back garden.”

To be in touch or send a picture of yor beast, wemail to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/07/30/what-matters-7/