Wednesday, Feb 16th

The Markets and Our Emotions


The emotional roller coaster that is the stock market is in full swing. Recent weeks have many people wondering if they still want to stay on the ride. In times like these, it’s always helpful to examine the source of the emotional swings from day to day.

Making money is fun!
We all like to make money. Some of you are still working and you get to see that paycheck deposited every few weeks and it feels good. For others, you get that IRA distribution, pension check or social security check deposited like clockwork, every month. You also get to log in to your account 24/7 and see where you stand on a daily basis. It’s been a long time since we all relied on a paper statement to be mailed to our house to see where we stand, either monthly or quarterly. Back then we would get that statement and if we saw that the account value increased, we smiled inside. However, when we saw that the account is less than it was the previous month, it wasn’t as fun. The difference back then was that we had to wait another month or another quarter to see where we stood. We didn’t have the daily reminder of an account balance to push us closer to the ledge.


Al Gore’s pesky internet
Once Al claimed he invented the internet, things changed. Much of it for the better. At this point in our lives, it’s hard to imagine living without it. Only the encyclopedia salesmen would say that the internet has negatively impacted his life. For the rest of us, it has changed almost every aspect of day to day life, most of it for the better. Clearly the internet also has it’s glaring problems, but that’s a topic for another day. We are a more informed society and we have access to more information that we could possibly fathom. That information has changed how we view many things, including our money.


Green days and Red days
I don’t know who the first person was to assign colors to the DOW on TV, but it was marketing brilliance. Green means good. Green is the color of money and everybody likes money. So, at some point in the past, the 6’oclock news decided it would display positive days in the market with bold, green numbers. I can imagine being in the meeting when they discussed this and they asked for suggestions on how to color code a down day. We all know that the media loves to grab our attention, and they are great at it. I assume someone said, “hey, red can be a scary color…think of blood, death, and mayhem.” The rest is history. I’m sure that’s not how it happened, but it may not be that far off.

Now that we are live in a 24/7 news cycle, the red or green numbers are shoved in our face all day, multiple times. Some folks even choose to get alerts on their phones, they check their balances multiple times daily, and their outlook on their day is heavily influenced by the color they see. Still there are others who record their daily balance on a spreadsheet. You heard me correctly, their daily balance. This is not healthy at all. Not one single bit.


Lot of Red lately
I assume most of you know that the market is down year to date. There have even been a couple of times since Jan. 1st that the market has been down 4 or 5 times in a row. And because we are now consuming this information multiple times daily, it has a greater psychological impact on us than it did when all we did was look at our statement once a month. Red days tend to make people nervous. They want to know why, and many times wind up searching the internet for answers. This is where further doubt and fears enter our lives along with the desire to hit the panic button.


What is your time frame?
Your reaction to the balance in your account should be greatly influenced by your investment time horizon. If you need to spend every dime of your money in 3 months or in 2 years, you will definitely see things differently than someone who doesn’t have this time constraint. However, if you are retired, or almost retired, you don’t need all of your money in the next year or so.  This means your balance today, next month, or even next year doesn’t really matter…when you have a long term perspective. You need that money over the rest of your lifetime, and if you are married, over your spouse’s lifetime, and if you have kids, you may even want to have some left for them.  That’s a poorly written sentence, but hopefully you get my point.


Am I going to lose all of my money?
If you are a client of our firm, I know for an absolute fact that you do not have every dime you have invested in one company. If you did have all your money invested in one company, that one company could go bankrupt and you could potentially lose all your money. This is one of the reasons I don’t recommend individual stocks for my clients. I make sure my clients are well diversified. If a company inside one of the funds you own goes bankrupt, you may not feel it at all. Our compliance firm as well as every legal disclaimer in this industry prevents me from telling you that won’t lose all your money. I think you get my point without me going to compliance jail.


The market is doing what it does
Just like a roller coaster, the markets go up and they go down. You can look at the history of the S&P 500, Dow, or any other index and you can see the returns year over year. Up years far outnumber down years, but down years do happen. In a lot of those up years, there have been significant intra year declines. These declines don’t show up on most of the historical charts that you’ll see. At some point I will provide you with the data on how often intra year declines of more than 20% happen, but the year finishes in positive territory. This happens more than you would think, so don’t be surprised when it does.


What do I need to do?
There are certainly times when we need to make mid-course adjustments. I think we can all agree with this. When the market dropped more than 30% during the early days of the coronavirus, we suggested small pivots for our clients who were taking monthly distributions. Nothing major, but for a few folks, we changed where their distributions came from. That’s it, nothing major. I didn’t tell everyone to sell out and move everything to cash and get back in when things rebound. This in on page 1 of the what not to do while investing for the long haul. I’ve never, ever, never, ever had someone tell me they want to invest their retirement funds for 3 or 5 years. Everyone has told me they want to invest for the rest of their lives, but when a string of red days happens, the thought of bailing crosses the minds of some. You must remain disciplined. Warren Buffet is quoted a lot, but I’ll reference a famous quote by Charlie Munger, who serves as the vice-chairman of Berkshire Hathaway. He said, “the first rule of compounding is to never interrupt is unnecessarily.”
Uninterrupted compound interest. That’s how you win, not in the short term, but over the long term.


Chances are, you don’t need to do anything. However, if your overall objectives have changed, we can certainly have a conversation and evaluate your overall strategy. We can do that at any time and I always want to make sure we are on the same page. If something fundamentally has changed in your situation, let’s talk.

However, if you are overly concerned about how the news of the day will impact the Dow or the S&P 500 tomorrow, your days will be filled with angst and worry. Today it’s Putin, next month it could be Kim Jong what’s his name, or some other world leader that we don’t even know right now. It could be inflation, a tsunami, a ship blocking a port, another virus, a tense election season.

Maintain Discipline
The point is, there will always be something else out there that will add to the uncertainty of day to day markets. Green days are a part of life and red days are a part of life. My encouragement to you is to remember what you already know. Markets are cyclical, so maintain investment discipline and a long term perspective. If you have questions or concerns about your strategy, call the office and get on my calendar.

Thanks for the trust you’ve placed in our firm.