There’s one asset that I’ve personally seen cause people to lose hundreds of thousands of dollars. I’ve seen this asset ruin families and affect them for generations to come. The tragedy of this asset is that you can’t sell it or get rid of it. It’s a risky asset that you have no other option but to tame the beast before it eats you alive. The name of this asset … and I can’t tell you how much I wish that it had a name that communicated the fear that we all should have of it … this asset is: your emotions.
If there’s anything in your life that you should be most fearful of it is this. Although the implication of this reality goes far beyond investing money, let us focus on this for a moment. Right now the market is only about 5% off from its peak price level set five years ago. If you had the absolute worse timing and bought in on the peak price level, your portfolio would just about be whole. In real money in your pocket, despite going through the worst financial crisis and economic environment since The Great Depression, you wouldn’t have lost anything. The key point of distinction is that those who didn’t sell didn’t ultimately lose money.
However, if your emotions had gotten the best of you and caused you to panic when you saw that the current value of your portfolio was down by half and you made the emotional decision to sell … you would have lost half your money. The enemy of your net worth at the crux of the Financial Crisis was not fat cat SEOs or greedy Wall Street people, it was your emotions.
One thing we can be sure of in this world it’s that there is always uncertainly. Early in my career people would tell me that they were going to invest in the market after ______ (fill in the blank scary thing). I remember people holding off investing until after Y2K. Or in the post 9/11 era, people would tell me that they were going to invest “once the next terrorist strike happens”. Or later on it would be “after the Iraq War settles down”. Or “once we start the war with Iran”. Or, “once the federal budget is balanced”. Or, “once Greece defaults”. Or, “once the Euro breaks up”. Or, “once we see who wins the election.”
Ladies and Gentlemen, the stock market – that is, the value of companies – does not give a rat’s what is going on in the world. The future is always uncertain. It may seem logical that current events ebb and flow between uncertainty and certainty. That eventually periods of uncertainly usher in periods of certainly. This never happens. It is complete emotional folly and those who invest accordingly are letting that emotional devil within you to compromise your decisions.
I believe that uncertainty is the only certainty. We don’t move from periods of uncertainty to certain, we simply move from one uncertainty to the next period of uncertainty. And that is that. The greatest value that I can hope to deliver to a client or a potential client is a gift at taming that emotional beast within you. It’s key to remember that all of us have the beast; you can’t get rid of it. Your highest investing ambition should be for it to be tamed. Secondly, I’ve met with hundreds of families and I’ve never met anyone who has been able to tame this beast all on their own. Everyone has made mistakes that can be traced to listening to their own emotions instead of thinking rationality about something.
In investing you need a partner. You should not look to your investment professional or financial advisor to be the investment magician. I believe that you are asking for heartache and moneyache to invest with someone claiming superior investment performance. You should work with a financial advisor who claims superior behavior modification ability.
When I take on a client, it is always my assumption that I will be with them on a journey for the rest of their lives (my clients are all at least a generation older than me, so it’s a reasonable assumption that my career will far outlast their life expectancy). I visualize that journey as a group of people in covered wagons traversing across the West 150 years ago. I see the group as my clients and their family and I am there directing it along the way. I know that along the way there will be bad weather and the group will be tempted to change the plan or settle halfway there. I know that at some point we’ll see other trails that seem like they may get us to our destination shorter. There will be constant temptation to doing everything but plod straight down the trail we are on, but the reason why I exist with the group is to make sure that we stay focused on the goal and not make foolish decisions based on temporary realities.
Uncertainty is the only certainty. Grownups must recognize this and invest accordingly.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing in securities, including stocks and bonds, is subject to market fluctuation and possible loss of principal. No strategy can assure success or protect against loss.
Chad Gordon is registered with, and securities are offered through LPL Financial, Member FINRA/SIPC.