As always, we have been doing a ton of reading and study to try to grasp the ever-changing economic and investing environment. This is a full-time job, which is part of what people hire us to do so that they don’t have to try and keep track of it all along with their other jobs and family responsibilities. There are times that we jokingly tell clients that we wish we had been granted that magical hat that Johnny Carson wore as Carnac the Magnificent– but alas, we have yet to receive our magical hat to assist with foretelling the future!
One article from The Emotional Investor I read recently was entitled: How Did I Miss That? It covered the hindsight related to dramatic market-shaking events such as the 1999 Tech Bubble and the 2008 Financial Crisis and our current Covid Crisis, or whatever we will end up calling 2020. I loved their graphic:
Isn’t that a perfect description of how we wish life operated? Unfortunately, of course, this is the sign we only see in our rear-view mirrors.
So, what do we do? As advisors, we typically respond to crises by emphasizing the making of informed decisions. We do this by gathering more data, lots of data, and then share that data with our friends and clients.
But logic and data won’t compensate for the more irrational feelings that we battle. In fact, recent research reveals that we (humans) generally make decisions based on the emotional/right side of our brains, and not the logical, rational left side; we all go with our “gut feelings”. Even more interesting was the finding that the right/emotional side “goes to sleep” when you speak in facts and figures, so no decisions can be made if we just focus on data and charts! So, we have to recognize that however much data that we gather and present, to provide evidence for rational responses, it cannot overcome the emotional weight that we all feel, especially when we are stressed.
Perhaps the most effective response instead is to acknowledge that the situation is a bit crazy and crazy-making and that our emotions are appropriate in response to our current condition. Regardless, our task is to work with you to try to process those valid emotions and encourage taking the time to allow the emotion to settle a bit before making decisions. We know that decisions made in the heat of a crisis don’t usually turn out to have the best results in the long run, which is true of most decisions, including investments.
The words of wisdom that we keep in mind come from Jack Bogle, the founder of Vanguard:
“Your success in investing will depend in part on your character and guts and in part on your ability to realize, at the height of ebullience and the depths of despair alike that this too, shall pass.”