Which Omicron? Why (and how) I bought stocks this week …


With my November investable surplus of $ 1,714.06 ready to deploy, I confess my heart was in my throat again on Wednesday as I opened my stock brokerage account to place my regular trade.

I watched for a good few minutes as Omicron fears drove the price of my planned investment up and down by about half a dollar.

I thought about whether to place a “market” order – accepting the price needed to instantly clear it at the going market price – or a “limit” order, where you take a hit. at a price on the low side of the “buy -sell spread” and hopefully the market will come down to fill it.

As a long-term investor, I really shouldn’t care so much about pennies. But as a notorious bargain hunter, I can’t help but want to score a cheap buy.

Eventually I placed a limit order offer, which luckily was fulfilled almost immediately (I had others who failed to clear). The job was done, I logged off and continued with my day. Ha! Not.

I, of course, spent the next 15 minutes refreshing my stock brokerage account browser to see if I had bought at the “right” time – only to see the price drop by about 50 cents. at this moment. Such volatility is, of course, an inevitable part of investing life.

It turns out that I suffer from a very common complaint from investors, that of “myopic loss aversion”. It is the tendency of humans to focus on short-term movements in stock prices and to feel the inordinate pain of any loss of paper much more keenly than any gain. Of course, you only realize a loss if you sell, which I don’t intend to do.

However, I have had to accept more recently that it was possible that I had started my journey of investing in a particularly “toppy” market. Price gains over the next two years seem unlikely to match recent returns.

This week, I sought to ease my edgy nerves by reading a 1997 article by economists Jeremy Siegel and Richard Thaler titled The equity premium puzzle. It is the observation that over time, stocks have generated a consistently higher rate of return than the risk-free rate – that is, the alternative of parking your money in government bonds.

The article shows that during the 70 years from 1925 in the United States, this premium was worth about 6% per annum.

But the premium is not always constant. Siegel’s earlier work found that between 1802 and 1871, the excess return on stocks over the risk-free rate averaged 2.9%. Between 1872 and 1925 it was 4.7% and between 1926 and the early 1990s it was around 8.1%. This gives an average annual premium over this nearly 200-year period of 5.3 percent.

Economists are not sure why stocks outperform bonds so much – which is why they called it a “headache.” They just know that historically they do.

Seeking reassurance that this bounty is not about to disappear altogether over the next few decades, I called the University of New South Wales professor of economics, Richard Holden, who told me about it. recommended the item.

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Holden still firmly refuses to predict where the stocks are heading towards me, simply offering the following: “Jess, there is a premium in holding risky assets like stocks and there has been a long, long time. If you take a long-term view and invest heavily in stocks, then this is a strategy that has worked well for over a century.

I have since moved my brokerage app to a file on my phone called “DO NOT LOOK”.

I only checked it five times this morning.

From!

  • The advice given in this article is general in nature and is not intended to influence readers’ decisions regarding investment or financial products. They should always seek their own professional advice that takes their personal circumstances into account before making any financial decisions.

About Nicole Harmon

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