Uncertain About the Market? Do Less

The S&P 500 has set a number of all-time highs this year and is up just under 8% to date. New highs naturally attract a lot of media attention, so with each passing milestone people have been asking if we are due for a pull back in the market?

On top of all-time highs, maybe you’ve seen an article predicting doom and gloom on the horizon. These articles get the page clicks and therefore show up frequently. In fact, you could spend a lifetime reading all of the stories about why an analyst is absolutely certain the market is due to collapse because of countless reasons.

The general public doesn’t monitor the market day in and day out, so naturally, if you hear of any reason for a market collapse you could be concerned. You may even be tempted to react and dramatically change your investment strategy. 

One of my favorite investment bloggers, Michael Batnick, created a fantastic chart that highlights some of the events touted as the next reason for a collapse over the years:

How many people sold out of their investments due to a headline about one of these events?

Human nature can make us our investments’ own worst enemy. Hardwired into our DNA, is the belief that we should be doing something. We are naturally reactive. Fight or flight has allowed us to survive and evolve for thousands of years. Unfortunately, this same hard-wiring does not lend itself to sensible, rational investment decisions.

New York Times columnist, Carl Richards, famously depicted our self-destruction with this drawing:

Here is the doom and gloom reality: No analyst knows with absolute certainty what will happen with the market. We analyze conditions and evaluate accordingly. Trying to time getting in and out will likely only cost you money in the long-run. In an ecosystem as dynamic as the market, there are no rules that say when X happens, Y occurs.

People don’t like to hear, “I don’t know”. But it should be said far more frequently and we should learn to be comfortable with the unknown, while planning accordingly based on personal financial goals. 

Market uncertainty is yet another reason a solid financial plan is so powerful. A proper plan should account for up, down, and sideways investment returns. If a plan doesn’t allow for the potential for a down-market, is it even a plan? Seems more like wishful thinking.

Patrick O’Shaughnessy hosts my favorite investing podcast, Invest Like the Best.

In wrapping his first season, Patrick said this about a trait he noticed among his guests:

“Instead of trying to predict what will work, focus on avoiding the common pitfalls. My favorite example again came in Africa, being told a hundred times not to run when lions charged us. It’s a common and known risk factor. [But one that was easily mitigated.] Each of our guides had been charged more than fifty times. If you don’t run the lion will stop short, and not maul and eat you. You just have to have that lesson beat into your brain a hundred times ahead of time because the basic instinct, as is so often the case with investing, is to run.”

You’ve heard the advice on successful investing:

Invest for the long-term. Stay the course. Don’t panic.

In fact, you’ve probably heard this advice repeated to the point of exhaustion. But, like Patrick said, we need this beaten into us because nature wants us to act!

If you don’t have a financial plan that is flexible enough to account for market shifts, please give us a call. We’d love to help you build around uncertainty.

And the next time you find yourself about to make an impulsive investment decision, remember the wise words from investment sage Kunu, “Do less.”