From Fear to Euphoria
Think back to 2008, when, for reasons no one fully understands, much of the world's wealth quickly and temporarily decreased. We thought, how can we make it now? We were so afraid even remembering that time causes pain.
Panic produces investment mistakes. Pull up a stock chart and likely you'll see the line fall in 2008 and rise above that number a few years later. Today, the patient investor has been rewarded for riding through those terrifying times. But that investor is so rare she is like an academic theory; she is a homo rationale or a home economicus: someone who does not exist except in our imaginations. Out here, with the real people, we feel pain deeply and we are prone to act, almost any way we can, to avoid pain.
The only reason the market declined terribly in 2008 is the same reason it rose since then. The only reason we lost money in the dot-com era is the same reason our wealth increased so incredibly fast in the decade before then: Emotions!
From fear to euphoria, from pain to bliss, markets swing around an efficient, historically rising trendline. If you are feeling either extreme, now is not the time to act.
Here is a half-hour interview with our friend Nick Murray on PBS. It first aired on Friday, 5/6/16, and we liked it so much that we watched it as a team in our Monday morning meeting. The best investment, he says, if you could only make one investment, would be the fee you pay your financial planner. As he points out, the average investor underperforms his or her investments.
As Mr. Murray puts it, the advisor's calling is to listen to our clients' hopes, fears, and dreams; create a plan; and follow the plan with patience and optimism.