The Roller Coaster Continues
October 20, 2022
I don’t know how day traders do it. The constant barrage of news and trying to act or not act on every tip or opinion that is out there. It’s why I chose long to ago to not to chase markets. My emotions would get the best of me.
I hate down markets as much as everyone, but I know they are a normal part of the investing. Almost everybody knows this, and we would all agree that with the ups come the downs. The challenge is that we can’t view ups and downs in a vacuum, but that’s exactly what spreadsheets and risk/planning software give us.
Even the software we use shows that your account has a 95% chance of being up this much or down this much. We can then zero in on a certain level of risk and we can build an investment strategy that matches the risk. The flaw in this is we do this exercise without knowing what the future holds.
But then, things happen.
The news of the day starts to play tricks on our mind. Even though we know markets will fall and our account values can decrease, the news blurs our previous belief that we would be ok with the downside.
Several people have asked me if their accounts could go to zero because the market goes to zero. I guess there is some compliance rule I would break if I said that is impossible. However, the chances of that actually happening are almost zero.
Sure, if you had all of your money in one company stock and that company went out of business and the share price went to zero, you could lose your money. However, none of my clients are invested that way. Everyone is invested across multiple asset classes in many different countries. This is another way of saying that you are diversified. However, diversification does not shield you from risk. It just means that your risk is spread out.
The news of the day right now is generally not good. However, you have to remember that we are in an election season and every media outlet has an agenda. Their agenda will influence how and what they report. How they report the news makes us anxious. Gone are the days of just getting the facts. You almost have to be a detective nowadays to determine if something is actually true or not.
How we digest the news of the day absolutely has an impact on how we perceive losses in our accounts. I have spoken with some people who are still 100% comfortable with their long term plans. I have also spoken with some folks who are very nervous and think this is the beginning of the end.
If you are in either of these two camps, or if you are somewhere in the middle, the important thing is to not let emotions be your guide. Emotions will wreck our long term plans. However, I do know that I want every single client to sleep well at night.
If you are having trouble sleeping and want to discuss your strategy, please reach out and we’ll make sure we stay on the same page. If we need to reallocate to help you sleep, we can certainly do that at any time.
Thanks again for the trust you’ve place in our firm!