The Tintin Market

Last week I took my boys to see the new Adventures of Tintin movie.  The movie is huge overseas, where Tintin is a popular comic-book hero, less so in the United States.  Unlike most American kids, I read the Tintin books growing up, courtesy of my Anglophile grandfather, so I was familiar with the narrative style – lots of fisticuffs, gunshots, car chases and plane crashes, but very little bloodshed and no fatalities.

A guy commented to me last week, “I can’t really watch action movies.  I know the hero is going to be alive at the end, so what happens in between doesn’t seem important to me.”  His comment speaks to a phenomenon in theatre and movies called “voluntary suspension of disbelief.”  If we are to be moved to laughter, tears or terror by the narrative, we must choose to pretend it is a real, and that the red-haired cartoon journalist on the big screen is a genuine individual who we actually care about.

I had trouble caring about the characters in the Tintin movie, which might be a good thing.  Given the film’s narrative of nonstop danger, if I had regarded Tintin as a real person, someone who was about to die every five minutes, it would have been too stimulating to watch.

Just like last year’s stock market.  The level of volatility in 2011 was extraordinary, especially in the second half of the year.  On average, we had a 2% or greater daily change in price once every seven trading days, compared to once every 53 trading days from 2003 to 2007.  The market surged or dropped by 3% or more twelve times in 2011, compared to only once in the entire mid-2000s period.  A bumpy ride indeed.

But wait a bit…the 2011 market was like the Tintin movie in more ways than one.  It was, without question, an exceptionally bumpy ride.  But it also went, without question, precisely nowhere.   The 2010 market ended with the S&P 500 Stock Index at 1,257.6, while 2011 ended with the S&P at (wait for it) 1,257.6.  Between the beginning and the end of 2011, the nonexistent net change suggests nothing happened.

So what was the 2011 market, continuous near-catastrophe or utter non-event?  Your answer depends on your viewpoint and your time-horizon.  In short, your response to the narrative.  To get the full Tintin effect of 2011’s sideways market, it helped if you were a frequent watcher of CNBC or Fox Business News.  You had to believe that the day-to-day, even hour-to-hour news flashes were important, and that every hiccup in every succeeding Euro-summit risked precipitating another global financial meltdown.

In a thirty-year career, I have seldom seen both professional and amateur investors more fixated on day-to-day news and market action, and less oriented toward long-term investment strategy.  It hasn’t worked very well.  Many of those who followed the news most closely gave up and sold all their stocks at one of the periodic lows.  This was not a profitable response.  Those who sold in early October, for example, missed a 14% recovery by the end of the year.

At some point, the Tintin market will be over.  Volatility will diminish and a clear long-term trend will emerge.  But that might well not happen until some years from now.  And by the time the trend is clear, assuming it is upwards, it will be way late to participate in the profits.

In the meantime, paying attention to every over-hyped news item, living or dying based on a single day’s 3% change, is no way to live your life – or to run your portfolio.  That way lies madness, and poverty.

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