- Thursday 12 March 2020
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Let me first start with the following disclaimer: This article probably won’t make you feel any better.
Still reading? Ok, let me explain why.
If you’re reading this then, as a human being, you’re looking for one thing above all others –certainty. Nothing gives more reassurance and comfort to a person than absolute certainty about what will happen in the future. And while we know, especially in these times, that real life rarely offers it, we look for it anyway.
I’m the same. I spent all morning reading research papers, data, even opinions that I could put in this blog to show, with absolute certainty that everything will be alright soon. And though I knew the truth, I persisted, before giving up and accepting that, like the hypothetical ‘perfect investment’ I talk about with investors, it just doesn’t exist.
So with that out of the way, let me try and offer some comfort and guidance, in the knowledge it will be absent the thing you want most.
- It is absolutely normal to feel scared about your money right now.
Of course it is. I’m scared. I’m worried about my savings, my pensions, my family investments, client money and all the rest. It would be ridiculous for me to try and supress it, so don’t double down on your anxiety by pretending it doesn’t exist.
- Create a Little Space
The most obvious response to feeling scared is a need to ‘DO SOMETHING’. That’s evolutionary, and very difficult to avoid. Doing something makes us feel in control and while it offers short term respite, it rarely (especially as an investor) leads to long term benefit.
So, if possible, try to put some distance between the ‘stimulus’ (i.e. the news, your portfolio account) and your response. Log out of your account and turn off the market news.
- Fill That Space with ‘Why’
If you can create space between stimulus and response, it means there is room there to be filled, and the most important thing you can do with this room is reconnect with fact. Basically remind yourself why you are invested and why you own the investment portfolio that you have.
If you’ve invested with our assistance, then you own a well thought-out and diversified portfolio that was built for a specific purpose. This purpose was to help you achieve dedicated financial and life goals within certain timeframes. As such, the amount invested in the stock-market, or any other asset class was done intentionally, based on those goals.
- Reconnect With Your Values & Purpose
By asking yourself why you are invested, you pull yourself out of the here and now, away from the noise and reconnect with the things that don’t change. This is the base of your investment decision pyramid – the values and purpose of investing in the first place. Maybe it’s to have enough for the lifestyle you want when you stop working. To be able to pay for your children’s education or gift them money in the future. To be able to stop working or change career. To travel.
Now ask yourself, has that purpose changed?
- Remember Specific Purpose Goals
If your purpose is the same, does that mean the goals have changed? Here we introduce the ‘money metric’ to your purpose. The lifestyle you want might cost €10k per month or €2k per month – has this changed? You may need to put €500 per month into savings for your children’s education. Has that changed?
What you’re trying to do here is remind yourself why you are doing this in the first place. We all know that humans have a tendency to make decisions that we might regret when we operate in the short term, when we’re not thinking clearly. By remembering back to the time when we identified our values, purpose and goals in a calm space, we’re simply reconnecting with that person.
- Remind Yourself Why You Invested
When we designed your portfolio, we used historical data to choose the appropriate assets, funds, income sources and risk to achieve your goals. Embedded in this historical data is periods when markets are going up and times when they are going down. So while we didn’t know when this current downturn was going to happen, we knew it was going to happen sometime. In fact, given a long enough timeframe, we knew it was going to happen multiple times. Therefore, the growth we expected in your portfolio, to achieve your purposes & goals, incorporates the idea that this kind of market would happen.
- Acknowledge the Mistakes We Make
Whenever scary markets happen, most investors experience these hurdles:
- Recency Bias: It kicks in and we project what has just happened indefinitely into the future. With social media central to our lives, recent past can be as short as an hour ago and yet even more consuming. We need to remind ourselves, the recent past will not go on
- The word ‘Unprecedented’ comes up and we tell ourselves, or more likely are told, that ‘this time is different’. Here it’s important to acknowledge that there is a truth, but it’s usually misdirected. The stimulus for the scary market is nearly always different, and often different enough that it’s never been seen before. A Global Pandemic is unique in our lifetime, as the 2008 credit crash was before it, 9/11 and the dot.com collapse before that. The event may change, but it’s the outcome that always ends the same way, which is, that it ends.
- We hunt for certainty. We desperately search for someone to tell us what is going to happen and hang our hat on that. What does Warren Buffet think? David McWilliams? The job of the pundit or so-called expert at times like this is to sell you certainty, and that’s what they’re on your TV or social media channel to do. Deep down though, we know they don’t. They might have insight we’re missing, knowledge of economics, trade or pathogens, but we’ve enough real world experience to understand that, at the end of the day, they’re guessing as much as the rest of us. That’s reality.
- We dismiss the past. It seems counter intuitive, but as much as we’ll bestow a talking head on the media, or worse, on twitter, with the ability to predict the future, we seem unwilling or unable to accept that history is the best source of information on what will happen next. This is despite all rigorous academic research and evidence pointing to that very fact. Again, it may simply be an evolutionary quirk, an amnesia towards history that, as the saying goes, ‘condemns us to repeat it’.
- Decide What You’re Going to Do Next
If your values, purposes and goals haven’t changed, you agree that your investment portfolio was built specifically with those goals in mind, the amount of stock-market exposure (among other assets) included was to achieve necessary growth, and you recognise that the portfolio assumed the current scary market scenario, the question is ‘What Should We Do Now’
As I said at the start, this is going to be unsatisfactory. Like Churchill’s quote on democracy, the steps I’ve outlined above about how to act during a scary market is the worst form of behaviour, except for all the others.
Imagine you’re in a lifeboat right now. It’s a terrible place to be, but jumping in the water isn’t going to be any better. Scary markets, like a punch in the face, are an arbitrary, hypothetical experience, until they happen. When we get back to dry land we can look at how the boat was built, but for the moment there’s nowhere else to go.
Most investment advisors, myself included, will try to persuade our clients to stick in the market by using facts and figures. Details of the ’10 Best Days in the Market’, ‘The Greed/Fear Fallacy’ and other technical approaches are correct but miss the bigger point. What you are experiencing now is genuine human emotion and to overcome this fear you have to connect with an even bigger emotion. So go back to the ‘Why’. Remember the reason you started this journey in the first place. Speak to your partner, colleague or, better still, give us a call. We get it. We’re experiencing it with you. And when it all ends and things go back to normal we’ll all do our collective best to forget it ever happened. Because we’re all human and that’s just what we do