Often, we are asked a variety of questions with very black or white outcomes. They will be questions such as:
- If interest rates rise, should I get out of the market? If rates drop, should I get in?
- If an opposing political party wins the Presidency or controls Congress, should I sell out? If my candidate wins, should we go “all-in?”
- If inflation increases, should I liquidate my assets?
- If oil continues to increase, should I run for the hills?
- If Congress reforms tax policy, should we sell it all?
- If the US Dollar weakens (or strengthens), should we sell out?
Recently, the favorite questions of this type are, “If Russia invades the Ukraine, or China invades Taiwan, should we get out of the market?”
These are interesting questions and ones that make my head hurt trying to accurately assess a variety of implications. Making matters worse, the news media knows they can prey upon our emotions with non-stop “Breaking News.”
If I didn’t know better, I would have thought that Putin invaded Ukraine at least twenty times this morning simply based upon the headlines scrolling on my TV and computer.
I’m not sure how we got to this point, however, there are some intriguing theories out there. The one we see discussed most often is the primordial “fight or flight” decision-making by early man.
Once upon a time man lived on the savannas. When he heard something snap in the grass he didn’t know if it was a cricket or a lion ready to pounce. As a result, the natural reaction was to run like the wind and make very fast and self-preserving decisions. For man to survive, this type of decision making became hardwired into our DNA and remains with us to modern day.
However, that is not the world we live in today. Although there may be some crazy drivers putting our lives at risk, I highly doubt any fierce felines are planning on devouring us.
Despite this, the news media recognizes the fight or flight instinct is still deeply inserted within us. They love to stir the pot with breaking news that conjures up some decision that must be made quickly. Furthermore, there are a myriad of soothsayers attempting to sell their newsletters that attempt to grab our attention.
Knowing this, it is difficult to keep your sanity while making wise and logical investment decisions. Here are a few suggestions.
Many possible outcomes are scary, but few will happen. The wise investor avoids unnecessary binary decisions and recognizes there are many increments to factor in todays world. As such, think in terms of subtlety and nuance. Over time, the combination of these individual increments allows an investor to be patient while still making wise decisions.
Things are constantly changing. What worked in the past may not deliver a guaranteed path forward. This is true whether discussing previously dominant industries or companies such steel, airlines or autos. Once upon a time, they dominated the business landscape. Today they struggle to keep up. Eventually, the same will be true for todays technology stalwarts.
However, these changes do not happen over night. Rather, they are much more glacial in their pace.
Similar comments can be made about interest rate policy, politics, tax policy, etc. They all play a role in impacting investments and markets, but they are not individually the sole definitive trigger.
Furthermore, it helps to own assets so good you don’t have to accurately predict and time macro-economic issues. A well-structured portfolio and a broad understanding of business allows you to endure a variety of challenges.
Unless you are a day-trader, the discipline of investing requires the ability to sit, read, learn and think…generally in a quiet room. None of this requires fast decisions. At the same time, you must be disciplined and stick to a long-term game plan. Lastly, this type of patient decision making allows you to ignore the sound bite of the day.
Dave Sather is a Certified Financial Planner and the CEO of the Sather Financial Group, a fee-only strategic planning and investment management firm.