The U.S. economy is entering its 11th year without a recession -- its longest economic expansion ever. This growth will not continue forever, but that doesn't mean it will necessarily end soon, either. Smart investors know that correctly predicting when a recession will hit isn't necessary to successfully manage an investment portfolio, as long as they keep a few things in mind.
Many market participants focus too much on short-term stock price fluctuations. They tend to feel good when stock prices increase and become anxious when they fall. This often leads to bad investing decisions. But if you are a long-term investor in good businesses and you are investing money you don't need for another purpose for many years, you can safely ignore these fluctuations and avoid the harmful effects they can have on your psyche. If you are investing to maximize your wealth many years into the future, you should focus on buying high-quality growth stocks at reasonable prices. These are businesses that should be much larger and more profitable many years down the road. A portfolio of companies like this should appreciate nicely over time as long as you paid a reasonable price.
The most successful long-term investors, including Warren Buffett and Charlie Munger, view stocks as ownership stakes in businesses, not blips on a screen that jump around. In fact, they think of stocks no differently than they think of their ownership of private businesses. When investors adopt that mindset, they tend to focus more on the things that actually matter, like long-term business results, and ignore the things that don't matter, like short-term stock prices. This is healthy because focusing on the latter tends to result in over-trading and sub-par results. For example, many retail investors got spooked and sold their stocks during the financial crisis only to miss out on the subsequent rebound and recovery. Viewing stocks as ownership stakes in real businesses and ignoring short-term market volatility can help us focus on the things that actually matter and achieve better results throughout the economic cycle.