Wait…Normal Markets Really Exist?!

I interjected in a Twitter conversation yesterday between the esteemed Josh Brown and Keith McCullough that sparked an interesting thought.  I’m currently 21 years old and have been involved in the markets (actually investing and researching) since I was a sophomore in high school – which just so happened to be the end of 2007.  Looking back on everything, I’ve learned an incredible amount and gained great experience (albeit losing a fair amount of money in the process) in some incredibly turbulent markets and tumultuous times which, frankly, have baffled a significant amount of “experts.”  Because of this, my view of normal is completely skewed from the older generations of pros and market analysts.  In fact, I don’t even know what normal is!

That said, I am certainly not at a disadvantage by being young and interacting in a market that could be considered a standard deviation or two…or three away from normal.  For starters, there is no argument that this is the best possible time in my career to have learned some of the lessons that I did.  If my (and my generation’s) first bear market were to have come much later in our careers, it could have been much more devastating to our net worth, job status, marital status, etc.  You name it.

Second, I have learned very few people can correctly time the market by calling tops/bottoms.  I’m certainly not a black swan, but going forward in my career, I can assure you I will always be cautious of unexpected events and factor these risks into my portfolio.  I still have a hard time generating scenarios through “what if” analysis because, frankly, I haven’t seen close to everything there is to see.  For example, I would never have been able to say “what if a country leaves the Euro” and plan for those risks.  However, I’ve learned how great of an asset this analysis can be for portfolio managers and frequently work on generating such scenarios.  Because I’m unaware of so many of these possibilities, I’ve taken to reading as many blogs and newspapers (from different countries) as I can in order to get a better sense of what ideas are out there.  I’ve spoken to plenty of older investors who write-off blogs like ZeroHedge as winey conspiracy theorists venting about the world, but it can be one of the greatest ways to think about ideas coming from left field and help to better prevent unnecessary risk in my portfolio.  Plan for the worst, hope for the best…lesson learned.

Most importantly, I’ve learned there’s always a bull market somewhere – it just takes some digging.  I’ve gotten the perception from older investors that emerging markets as well as asset classes other than stocks/bonds are exotic and untouchable.  Look how popular the FOREX markets have become for retail investors in the past 4-5 years.  Every book I’ve read on investing has usually focused on U.S equity and bond markets, but we’ve seen over the last few years that foreign markets and asset classes can present incredible opportunities – hence, the rise of ETFs.  I’ve never had enough capital to open an account on margin, and therefore, I’m unable to short stocks.  As a result, I’ve been forced to look for bullish markets across the globe.  I think the next generation of analysts, portfolio managers, and everyday traders/investors are going to be much more accustomed to “exotic” markets and assets given their market upbringing.

At the end of the day, being 21 during such a volatile couple of years certainly hasn’t helped my current portfolio, but going forward it will most definitely shape my investing strategy and perception of risk.  I’ll be entering the full-time workforce this summer (hopefully), and so will everyone else who began investing around the 2008 financial crisis.  Look out for some interesting investing trends in the years to come that may have been shaped by our initial experiences in the market.

Follow @zringer21 for more commentary and updates!