Don't React

A friend recently forwarded me this post by Jason Zweig from back in 2014. I’d suggest reading it in its entirety. Twice. Seriously, read it right now.

If you didn’t read it: Zweig reminds us that investing isn’t about outsmarting the market. It’s about outlasting your emotions.

This week (I’m writing this after the close on April 8th), I’ve thankfully had just a few calls from clients worried about the state of the world (and their investments). I’m glad there have only been a few. It means my constant reminder that, ‘on average, one out of every four years the market will take it on the chin, and you’re going to hate me,’ has resonated.

For the few calls that did come in, my message was clear:

• Don’t react unless it’s to invest more into equities.
• Know that the bad times will pass because they always do.
• A headline, a comment from a friend, or some other external voice will scare you again. And when you do get scared, remember the above two sentences (or call me).

Those three points sound simple, and they are. But they’re not easy. Our brains are wired to run from danger. When markets fall, emotions take over.

Market downturns become more painful than they need to be because of two big issues in the finance profession.

First, many take themselves way too seriously. The simplest way I can describe it is this: people in finance often speak about the future with absolute conviction. Then, when the future arrives and proves, like always, that we didn’t have a clue, they just move on as if nothing happened. Here I go for the ten thousandth time. No one knows what’s going to happen.

Second, many lack humility. There’s nothing wrong with saying, ‘I don’t know,’ or ‘it could get worse, or it could get better,’ or ‘it could stay the same for a while.’ So why do so many in this field waste so many words and so much time on things that just don’t matter? I don’t get it.

Then there’s financial journalism, which I believe exists solely to ruin investors’ financial plans. Here’s a recent example:

I listened to a popular podcast on Monday afternoon. I couldn’t help myself. It’s hosted by two renowned financial journalists. One of them, who’s been in the business since 2004, said this:

‘I believe, plausibly, that this is the biggest story of our lives.’

What?

He went through the Great Financial Crisis and Covid. He was in university during the tech boom and bust. And that’s just the past. What about the future?

If everything is ‘the biggest story of our lives,’ then nothing is.

The profession doesn’t help itself. The public-facing side is filled with people who speak with unearned certainty. And the media side? It exists to scare us. Fear sells, so when volatility strikes, investors are left caught between an industry that pretends to know the unknowable and journalists who amplify every possible doomsday scenario.

It really irks me because the recipe is so straightforward:

• Don’t react unless it’s to invest more into equities.
• Know that the bad times will pass because they always do.
• A headline, a comment from a friend, or some other external voice will scare you again. And when you do get scared, remember the above two sentences (or call me).

That’s it. Simple doesn’t mean easy. But it works.