Strollers and Stocks
What can investors learn from trying to keep a baby asleep on a walk?
One of my favorites rituals I have is taking my son out for a morning walk in his stroller. I have three goals for these walks:
Expose my son to the sights and sounds of nature
Get my steps in
Get my son his morning nap
Goal #1 is the most important in a macro sense. Goal #3 is the most important in a “will I survive today as a parent” sense. A good morning nap means he will remain a happy little boy for longer. A short morning nap and he gets fussier throughout the day.
My son has always been a good stroller napper. He typically drifts off gently to sleep within 10-30 minutes of walking. Keeping him asleep is the challenge. He’ll sleep for at least 30 minutes. If I’m lucky, 45-90 minutes.
Like many neighborhoods in the United States, the sights and sounds of nature are usurped by the sights and sounds of lawnmowers mowing, dogs barking and weed whackers whacking.
The wrong loud noise at the wrong time will wake my son up.
We walk on a quiet block and out of nowhere a contractor fires up a circular saw in a garage 20 feet away and slice into a piece of tile. My son = awake.
We walk on a quiet block and an elderly lady comes outside and starts to drag her empty recycling bin from the curb up her driveway. My son = awake.
But one source of noise stands above all other. My current archenemy: the garbage truck. A hulking beast of metal, the garbage truck’s brakes squealing at every house as it comes to a stop is a sure bet to awaken even the most sleepy of babies.
We walk on a quiet block and I sense a distant screeching upon the air. The ground begins to rumble. I see it coming down the street. My archenemy. The evil, cacophonous garbage truck.
Thinking quickly, I dart into the parking lot of our community pool to escape the oncoming brute.
The garbage truck passes the entrance and I feel relief.
“Beep….beep….beep.”
Relief turns to fear. The garbage truck reverses into the parking lot. I look to my right. A dumpster appears. There is no escape. There can be no victory. The garbage truck is drawn to us like Sauron to the ring of power. It passes directly next to us and unleashes a symphony of mechanical racket upon us.
My son = awake.1
What can we learn about the stock market from daily stroller adventures with my son?
Just like trying to avoid noise while on a walk2, trying to “time the market” is almost impossible to execute. There are always unforeseen events/factors that affect the price of stocks or entire markets, and trying to predict them is a fool’s errand.
Just as a random dog barking may wake up my son, an unexpected weather disaster might cause a factory to go off-line that negatively affects the stock price of a company you invest in.
Just as a lawnmower revving up may startle my son, a sharp change in interest rates of a foreign country might signal something to markets that danger is ahead and it affects the price of your stock fund.
Just as the all-encompassing garbage truck uses it’s prolific noise pollution powers for evil, the President of the United States may will send out a tweet or truth3 regarding a policy that fundamentally alters the outlook for your biggest holding.
In the long run, the vast majority of investors/fund managers would be better off accepting market returns and not playing the game of timing when to enter and exit positions.
Second, big moves in stock prices (positive or negative) are usually preceded by a big shift in expectations.
Simplified, stocks are priced based on current financials and a story about the company’s future earnings. If investors expect 10% growth in a company’s earnings annually for the next 10 years, the stock will likely provide returns accordingly. If nothing changes that outlook, the ride will be smooth.
For stroller walks, this is like a nice quiet walk where there are no loud interruptions and my son has a nice, long nap. Ironically, this also happens when there is a consistent louder noise throughout the walk. He can usually sleep if we’re next to a road with consistent traffic.4
But what happens when there is a big shift? That’s when stocks move. That’s when my son = awake.
Look at Apple stock year-to-date:
Apple has been one of the best performing stocks over the past 25 years. So why is it down so much this year? You see that big price decline starting in April? The stock went from ~$224 a share to $173 a share in about a week.
What shifted? Apple is reliant on China for production and the US officially announced tariffs on China. There were articles about iPhones selling for $3,500 if Apple made them in the US. This scared investors enough to sell.
The stock rebounded after Apple received a tariff exemption and rose further upon news of positive preliminary talks between the US and China.5
Sharp up and down days in markets usually cluster around each other. Here’s a chart from JP Morgan’s excellent Guide to Retirement illustrating this point:
You have to eat the downswings in order to earn market returns. There is no reward without risk.
I could avoid waking my son up from naps by not taking him out in his stroller at all. But the reward is worth the risk. Maybe the garbage truck isn’t so scary after all.
In both cases, it’s best to learn to ignore the noise.
If you want your personal finance questions answered in a future Mound Visits, comment below or send me an email at nick@nineinningfinance.com with your question/scenario.
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Nothing in this email is intended to serve as financial advice. I don’t know your personal circumstances and would never provide financial advice through this medium. This newsletter is intended to be educational and entertaining. Please consult a financial professional and do your own research before making any changes to your portfolio.
I do think that screeching sound garbage trucks make is akin to the piercing noise the ring wraiths make in the Lord of the Rings movies. Either would definitely wake up any baby. Also if you’ve made it this far, thank you for indulging me.
I am referring to urban or suburban areas. I imagine if you live in a rural area, noise pollution would not be as much of an issue.
This is what posts on Truth Social are called. Just lovely.
Unless someone honks their horn too close to us.
There are likely many other drivers at play too.