“Plenty to worry about but not much for investors to do” was the headline from a recap Byron Wien, famed Blackstone market strategist, penned after his annual gathering for “serious investors”. I’m not going to go into the specifics from his gathering. You can read about it here if you’re interested.
Apart from Mr. Wien being the author, I was drawn to this write-up by the headline. There’s always plenty to worry about when it comes to investing. By reading, watching or listening to the news and watching the daily moves in the stock market you can quickly convince yourself that the market is going to go down. Or in some cases, that it’s going to keep going higher no matter what. Our emotions are easily influenced by dramatic headlines and stories, which often don’t reflect all of the facts of a particular situation. Once our emotions are evoked, most of us go into response/reaction mode. We may make a rash decision immediately or we may talk ourselves into making a rash decision in the near future. As we work ourselves up into this emotional frenzy, we place undue confidence in the first bit of information we received about whatever matter has us on edge. From there, we often seek confirming evidence of the first piece of information we obtained while brushing aside dis-confirming evidence. We perpetuate this cycle until we make an emotion-based decision or until someone knocks some sense into us, which is unlikely to happen. Most of the time, we don’t even realize we made an emotion-based decision until after the fact, if at all.
As your read this, you may think to yourself that you don’t fall into this trap but we actually ALL do. Our emotions are so strong that they can override our rational selves fairly quickly and do quite a bit of damage in all facets of our lives, including our investment portfolios and retirement accounts. Simply being aware of these biases isn’t necessarily enough. As we’ve discussed at length in other posts, having a plan and sticking to the plan is essential. But even having a plan isn’t always enough. As Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” In other words, everyone has a plan until something unexpected or unplanned for happens. Well thought out and designed plans that account for the unexpected are the preferred types of plans. An advisor can also help, especially when the unexpected occurs, by providing perspective and by helping you to stick to your plan no matter how uncomfortable that might be for you at the time. That’s not to say that plans don’t need to be adjusted from time to time, but making those adjustments based on emotion is not the best approach to altering an investment plan.
In the end, the deck is stacked against us when it comes to investing if we fail to get the odds in our favor. Sticking to proven practices and principles is the best approach to investing.
