You see fear and panic in the streets. People are wearing surgical masks. Brexit has arrived. Impeachment. Climate emergency. Planes falling from the skies. Surely if we’re looking for signs of Armageddon, they aren’t hard to find. It’s not very hard to figure out why people are so anxious these days.
But does that justify outright panic?
Being a science guy, I’ve never really put too much stock in the emotional and psychological forces at play in the market. I’ve certainly witnessed enough incidents of fear far outstripping any rational cause for alarm. It always seem our society’s collective psychology is always a step behind. We react to what’s already happened, instead of trying to analyze what’s coming next.
And it’s usually the opposite of what’s just happened. Steep corrections typically are accompanied by major buybacks. People sell too early. They hitch their wagons to yesterday’s success story. They buy mutual funds based on last year’s performance (which is often a sure marker of a weaker year ahead because they’ve already secured most of the gains available within their mix of investments).
In our considered opinion, the world is not about to end.
We see it as our responsibility to calm troubled waters. We know nothing is gained from over-reaction. We try to serve as a solid, reasoned sounding board for our clients. We try to walk them back from the precipice when they want to sell at a loss in a moment of panic.
We’re not saying it always pays to keep the faith. Far from it. We can be as opportunistic as other investors, but it has to be based on more than pent-up emotion.
The reality is that when everything is pointing one way, it’s probably already started veering in a different direction. You could describe our approach as cautious or prudent. We just don’t like surfing waves of public sentiment.
That’s not always what clients want to hear. But after a few deep breaths, after the markets stabilize, or the virus is contained, or the impact of trade and political tensions fade in significance, our clients are grateful to have another perspective when weighing their options.
That’s an important aspect of our role as financial advisors.
Here’s to a successful 2020.
All the best,
1370 Don Mills Road, Suite 211, Toronto, ON M3B 3N7