Written by: Corey Janoff
We have seen a lot of volatility in the stock market the last week or so and it got me thinking, what if people weren’t able to buy and sell stocks every day? What if the stock market was like a farmer’s market and only open one day a week?
Warren Buffett once said something to the extent of, “You should only invest in a company that you would be perfectly happy to hold if the market shut down for 10 years.”
Now, that may be a little extreme, but it’s definitely how you should approach investing in stocks. If you are investing in stocks with the idea that you can or will sell in less than five or ten years, you might want to think twice about investing in stocks.
What if the stocks market was only open one day a week? Or perhaps the stock market only opens one day a month. Or maybe once a quarter or even one day per year? How would we approach investing in stocks if that were the case? Let’s dive in!
What If the Stock Market Was Only Open One Day a Week?
Say the stock market was like a farmer’s market and open every Saturday from 9am to 3pm. If that Saturday happens to be a holiday, such as 4th of July, Christmas, or New Years, the stock market wouldn’t be open that week and you would have to wait until the following week.
If your kid has a soccer game that day, you have to decide if you’re going to the market or the soccer game. Choose wisely.
If the stock market was only open one day a week, we would likely be much less emotional when it comes to investment decisions. If you see a news headline on Monday, positive or negative, you will have all week to let your initial wave of emotions subside before deciding whether you should buy or sell stocks at the market on Saturday.
You know when you are irate with someone and you sit down to type an angry email? We’ve all been there. However, we all know we shouldn’t send the email. If we do regretfully hit the send button and then look back at the email a week later, we often feel embarrassed and think to ourselves, “Boy, that was a little extreme. Probably shouldn’t have gone there.” On the flip side, if we don’t send the email and wait a couple of days, the anger has often subsided, and we’ve moved on to bigger and better things. The desire to send an angry email has gone away.
Letting our emotions subside and allowing our brains to process the information in a level-headed manner will enable us to make wiser decisions.
If the stock market was only open one day a week, we wouldn’t have stock tickers scrolling across the bottom of the TV screen on the financial news networks throughout the week. Heck, the financial news networks would have a lot less to talk about, because there would be no stock market activity Monday through Friday.
Sure, things could still get a little crazy on those Saturdays when the market is open. However, once the closing bell rings, we would have an entire week to think about our actions before we have the opportunity to do something stupid the following Saturday.
Just one week would do wonders in subduing panic and greed. Just as importantly, you would actually have to plan your investment decisions ahead of time. You would need to put a little thought into your overall strategy when it comes to buying and selling, because you wouldn’t be able to transact again for another whole week.
Really, one week isn’t that long to wait, but we would be reducing the number of trading days by 80%.
What if we made people wait even longer before they could buy or sell stocks?
What If the Stock Market Was Only Open One Day a Month?
I would be a big fan of the stock market only being open one day a month and only having 12 trading days per year. It would line up well with most people’s systematic deposit strategy. Many people make monthly deposits into an investment account. Workplace retirement account contributions are withheld from our paychecks and deposited once or twice a month as is. Really, we only need the stock market to be open one day a month to allow us to regularly invest a portion of our paycheck.
If we needed to sell stocks to generate cash, we would have to plan ahead. If you need to liquidate a portion of your portfolio for a home down payment, you better do it well in advance, because you might have to wait 30 days until you can get to the money again.
One day a month is more than enough frequency to allow people to rebalance their portfolio as needed throughout the year.
We would have to be much more thoughtful in our investment decisions. Are we getting in or getting out? You only have one day to trade each month, so you can’t sell a position one day in hopes of buying it lower a week or two later. Or buy a position on momentum with hopes to sell it a couple weeks later for a quick profit.
A knee-jerk reaction to a news headline would still be possible, but we would have to wait an entire month if we change our mind.
What If the Stock Market Was Only Open One Day a Quarter?
Only having four trading days per year in the stock market would line up well with company earnings reports. Publicly traded companies report earnings quarterly. We could set the trading day to be after all companies have reported earnings for the quarter, so we have time to properly digest the information before making decisions.
Again, you would have to be much more strategic with investment strategy decisions. In fact, you would be investing almost entirely based on strategy rather than news headlines or emotion. Sure, you could still decide to buy a position with plans to sell it three months later, or sell a position in hopes that the price will be lower in three months. However, it’s more of a gamble. If your intuition proves to be incorrect three months later, you would have to wait until the following quarter, six months after your initial trade, to see where things lie. There would be much less speculating and much more investing.
We wouldn’t be eyeing the news throughout the week to see how the markets are doing, because there wouldn’t be markets outside of four trading days a year. You wouldn’t know how much your investments are worth until one of those trading days came across the calendar and buyers and sellers come together to agree on prices. Kind of like how you don’t really know how much your house is worth until you go to sell it. Ignorance is bliss.
I like the quarterly trading day. It’s long enough to where we would mostly remove much of the short-term emotion that impacts the stock market, yet short enough to allow people to get to their money if needed.
Only being allowed to trade once a quarter would require some planning. Similar to the example in the monthly trading day scenario, if you know you need your money for something in the coming months, you better cash out now, because you won’t be able to get to it for another 90 days.
What If the Stock Market Was Only Open One Day a Year?
This would be the ultimate cleanse of emotion from our investment decisions. If we can only buy and sell stocks one day a year, we must be strategic about it. Also, we better think long and hard before deviating from our strategy. We would have to wait an entire year before we could make any changes again!
This would be fantastic. Short-term trading: gone. Speculating: mostly eradicated. Investing based on news headlines: no thank you.
We would have to invest based on a strategy to achieve our goals. If we want to achieve financial independence one day, we know we need to invest money and keep it invested. Sure, you could sit a year out, but why would you? Historically, US stocks increase in value three out of every four years on average. Are you really going to take your chances betting against a 75% probability? Of course not!
Money that you want to earmark for your future goals will stay invested. Money that you might need in the near future will not be invested.
Same example as before, if you want to buy a house in the next year or so, you are not going to invest the money you need for a down payment. If you potentially need that money, you won’t lock it up in something that can only be accessed once a year.
Short-term money: avoid the stock market. Long-term money: leave it invested.
Obviously, this will never happen, but this is how we should approach investing. Invest based on a strategy and a plan rather than a feeling or emotion.
We are humans and humans are emotional. Both good and bad emotions. Emotions that allow us to get excited, experience joy, laugh, get angry, scared, panic are all imperative to our survival and make us who we are. These same emotions are a giant nuisance when it comes to making investment decisions. They cloud our judgement and get in the way of us making sound investment choices.
If the stock market was only open a limited number of days per year, we would be forced to develop investing strategies that would minimize the impact of emotions on our investment decisions. We would be basing our investment decisions on what will enable us to achieve our goals, rather than how we feel about something.
The best thing we can do is to recognize our emotions, acknowledge their presence, and craft an investment strategy that doesn’t allow our emotions to get in the way.
Turn off the news. Enjoy your week, month, quarter, year.
Investing involves the risk of loss, including total loss of principal. Consult with your financial advisor before making any investment decisions.