“Traders brace for an explosion of volatility Friday as $2.2 trillion in stock options expire.”
– MarketWatch, August 17, 2023
In last month’s article, we announced a new change in our monthly format. This month, we noticed that the financial media prepared us for an “explosion” … that never arrived.
Register Now for October 11th
We have been publishing our Great Investors article series for over 10 years now, and this series has consistently been our most popular content. We thank our loyal readers, and we truly appreciate your comments and feedback over the years.
One suggestion that we have received several times is that many of our readers feel that it would be more beneficial to have an interactive conversation about our investing philosophy and outlook on current events in relation to that philosophy. Many have suggested that it would be valuable to have an opportunity to ask questions about our topics in addition to just reading our article.
Beginning this quarter, we are changing the format for our Great Investors series from a monthly written commentary to a quarterly live-stream seminar format. We will deliver a brief talk summarizing our outlook on current events, delivered in the same style you have come to appreciate in our monthly article series. We will then have ample time for Q&A and discussion in order to address any additional questions you may have.
Our first seminar will be held on Wednesday, October 11th. For those who attend in person, our talk will be followed by cocktails and some tee shots at Top Golf in King of Prussia, PA. We will also share a recording of the event for those who cannot attend in person.
Please find the registration link here, where you can register to attend or request a copy of the recording.
A Quick Tidbit for September
Regular readers of our articles know our feelings about the financial media, so it will come as no surprise that we noticed this headline published on Thursday, August 17, on the financial website Market Watch:
“Traders brace for an explosion of volatility Friday as $2.2 trillion in stock options expire.”
Of course, this “news” is utterly meaningless to the long-term equity investor. The fact is that the vast majority of stock options expire on the 3rd Friday of each month; it has been that way for decades. There was nothing particularly notable about Friday the 18th of August this year or any different from the scores of other Fridays upon which a large volume of equity options have expired for many, many years. That Friday was “business as usual” in the options market, and the evening up of options positions that occur on any expiration Friday has nothing at all to do with the earnings, dividends, or valuations of the businesses that comprise the equity market.
As evidence for that fact, we will note that the S&P 500 closed at a level of 4,370.36 on the Thursday when this headline advised us to brace for an explosion. The following day, when all of those options expired, the S&P 500 closed at a level of 4,369.71, down a grand total of .65 a point. Hardly an explosion that we needed to brace for.
So why the scary headline?
It is useful to always remember that the financial media have zero interest in whether you succeed as an investor or not. They are, in fact, perfectly indifferent to what their readers/listeners do as investors. They care only about clicks because clicks are how they get paid. And since the oldest, truest maxim of journalism is “if it bleeds, it leads,” the more catastrophist the headline, the more likely the investor/consumer will click on it. That’s all that matters.
So, we are constantly bombarded with headlines like this one, which sound scary but are utterly meaningless. Sadly, these headlines also tend to perpetuate the illusion that the way to become successful as an investor is to constantly move your money in and out of the stock market based on the economic or geopolitical news of the moment. In fact, this is by far the best way to ensure that your investing plan will fail and is the reason why most investors underperform their own investments, as demonstrated in the chart below.
Helping Those You Care About
Over the last year and a half, the faith of all long-term investors has been severely tested. As must happen every few years, we were basically required to do just one big thing: reject the idea that “this time it’s different” and hew to the belief that “this too shall pass.” We must not doubt that we’ll get many additional opportunities to practice patience and discipline in the years to come.
Successful investing, while always fundamentally simple, will never be easy. You may have a family member, colleague, or friend who perhaps did not fare as well during the 2022-23 bear market and who you feel might have benefited from the sort of advice you were receiving. Should that be the case, we would certainly appreciate your introducing us to them. We very much enjoy working with you and would welcome the opportunity to offer the same level of planning and service to people whom you care about.
You are more than welcome to bring a friend or family member to our event on October 11th or to share the recording of our discussion that night.