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Every client that we see has some idea of where they want to go...the desired destination. The inevitable bumps in the road, however, push many individuals to veer off course. Ultimately, accomplishing what you want financially means being able to “stay in your seat”.
The media pundits treat daily price movements in the financial markets as “news”, but in reality this is normal. Over the past 37 years, the S&P 500 has declined on average about 14% at some point during the year. Yet, in 28 of those years, the overall year was positive for that index. The chart below depicts the year-by-year returns and intra-year declines. Those who are able to “stay in their seat” reap the rewards.
The journey towards your destination will inevitably travel through the jungle of conflicting, scary and irrelevant information. We live in a world of data overload and this creates a fertile field for distraction and diversion. The massive volume of information, (most of it useless), can often change behavior and perspective...but usually not in a positive way.
I was recently at a birthday dinner for a friend after one of the “down days” in the stock market. One of the other guests came up and asked how many clients had called us that day to express concern about the markets. When I told him that not a single client had called about that topic, he expressed surprise bordering on disbelief. To him, (and sadly to most investors), there is an urgent need to react to the “news” of the day. Needless to say, he was nonplussed by my “stay in your seat” expression.
We always remind our clients that just because a financial journalist says something about the markets, this assertion does not mean that this assertion rise to the level of the Laws of Moses (The Ten Commandments). Yet, many investors fall prey to the “chaotic causation” scenario often painted by the financial media. At the end of every day, the news is spilling over with references to “why” the markets went up, or” why” they went down. Remember this, the 90 million or so transactions each day in the global markets determine this, not the media. The “reasons” are usually many and varied but that doesn’t sell media advertising, so they have to devise something sensational.