Why "I Don't Know" Could Be Your Greatest Financial Strength

Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.

In today’s newsletter:

• A Look at the Markets: S&P 500 & Tesla

• Why "I Don't Know" Could Be Your Greatest Financial Strength

• Quote of the Day: Warren Buffett

• What I’m Watching: Marko - Whiteboard Finance

• Word of the Day: Bear Market

• Whenever you are ready, here is how I can help you

A Look at the Markets: S&P 500 & Tesla

S&P 500

The chart above shows that the S&P 500 has dropped by 10.65% from recent highs. This is a ‘correction’ rather than a bear market (so far).

A correction is a drop of 10% - 20% from the recent highs whereas a bear market is a downturn of 20% or more.

TESLA (TSLA)

Tesla interests me at the moment. It is down more than 50% from its all-time high in December 2024. While that sounds significant—and it is—the stock has merely returned to the support and resistance levels seen before Trump’s re-election in November 2024.

In other words, Tesla has erased all the gains driven by the Trump victory hype.

Potential investors should consider:

1. Were there any real fundamental benefits for Tesla from Trump’s re-election, aside from Elon Musk’s close ties to the new president?

2. What might happen to Tesla if Musk were to leave the company?

3. What might happen if Musk stepped away from politics to refocus on his business?

4. Has Musk’s political alignment with the Republican Party harmed Tesla’s long-term prospects, given that much of its U.S. customer base leans Democratic?

Technically, Tesla appears to be at a key buying level, especially if it breaks through its current support-resistance range.

Fundamentally, however, many investors may see Musk as a liability, given how much time he is currently dedicating to politics.

What do you think? Will buyers return to Tesla?

Why "I Don't Know" Could Be Your Greatest Financial Strength

Embracing uncertainty as your path to investment confidence

Investment Wisdom - Embracing Uncertainty

Sometimes, the three most powerful words in investing are “I don’t know.”

Many potential investors believe they must have complete market knowledge before embarking on their investment journey. However, even the most successful investors readily acknowledge their limitations in predicting market movements. They recognise that they cannot predict the future, admit their inability to predict the future, and, most importantly, don’t let that fact deter them.

I became much more comfortable investing when I realised that, despite all the market predictions, no one really knows with certainty what will happen in the markets next.

Navigating Downturns

The markets are currently experiencing a correction and not yet a bear market, as we can see in our "Look at the Markets" section.

This is nothing new and, in fact, is only to be expected. There have been 40 market corrections (10% - 19.9%) plus 26 bear markets (a drop of 20% or more) in the S&P 500 since the stock market crash of 1929. We can combine these figures to see that there have been 66 downturns of 10% or more since 1929 - nearly one in every 1.5 years on average.

Despite these challenges, market history consistently demonstrates that patience often rewards those who can withstand short-term uncertainty.

The Impossible Task? - Timing the Market

Selling in declining markets with the intention of buying back at lower prices demands exceptional timing.

Perfectly timing market bottoms is exceptionally challenging, even for experienced professional traders. By the time most investors confidently identify a market bottom, prices have usually already begun recovering. Psychologically, investors often struggle to put all the money they withdrew from the market back in, often until their entry price exceeds their original selling price.

Furthermore, this strategy frequently leads to taxable events that can substantially affect overall returns - investors have to pay a proportion of their investment in capital gains tax rather than let it grow.

Contrarian Thinking

Warren Buffett advises, "Be fearful when others are greedy, and greedy when others are fearful."

This contrarian philosophy encourages investors to develop discipline that runs counter to emotional market reactions. When markets are surging and investor sentiment is overwhelmingly positive, Buffett suggests exercising caution rather than chasing returns. Conversely, during market downturns when pessimism dominates the headlines, he advocates looking for buying opportunities—precisely when quality investments may be available at discounted valuations.

Developing this contrarian mindset can transform how you perceive market volatility.

Embracing Market Pullbacks

Over time, I've learned to embrace market pullbacks as potential opportunities.

I understand that pullbacks are a natural and important part of the financial markets. I understand that markets do not go up in a straight line, and I accept that I cannot, and do not even want to try to, time the market. I do not know what will happen next, and I do not pretend otherwise.

These beliefs allow me to stick to my long-term strategy and not worry about short-term fluctuations.

The Simplest Strategy  - Dollar Cost Averaging

What if you do not have a strategy?

In my opinion, the simplest strategy that everyone can follow is to invest regularly in a global or regional ETF, depending on your risk tolerance. If you invest the same amount of money every month, you will naturally buy more of an asset when the prices are lower - just think how nice it is to buy things in the sales. This is called dollar cost averaging (DCA).

Keeping it simple allows everyone to become an investor and look after their financial future.

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Warren Buffett

This quote encapsulates my attitude to investing and I remind myself of it during downturns in the market, in particular.

What I’m Watching: Marko - Whiteboard Finance

This video examines the difference between a market correction and a bear market.

One important message from the video: ‘Bear Markets do not last forever’.

Word of the Day: Bear Market

Bear market - compound noun - countable - a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment

Bear market is a compound noun - a noun consisting of two or more words that function as a single unit. While some compound nouns are written as one word (downturns) or hyphenated (bull-market), "bear market" is written as two separate words while still functioning as a single noun concept in financial terminology.

Word Family:

• Noun - bear market

• Adjective - bearish

• Adverb - bearishly

• Verb - to bear (as in "to bear down on prices")

Bearish - adjective - characterized by or expecting falling prices in the financial markets

Bearishly - adverb - in a manner that anticipates or reflects declining market prices

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.