Market Volatility and the Investor’s Perspective | February 2016
Last month we talked a little bit about stock market volatility, and after the last 30 days, we should probably stick with that topic. As a start, however, we absolutely must establish our perspective: Think Long Term. And long term is not a year or two, or even five or more. We are investing for a lifetime. Ten, twenty, thirty years and more should be our focus.
Let me tell you a story about how this was recently brought home to me again. I had a young guy doing some physical labor at my house that required ladders and power tools that I dare not use anymore. He was of a type that I love to meet: young, married, with a child and the second on the way, hard worker, and full of honesty and integrity. He works two jobs to get ahead, one at the company and the second self-employed on nights and weekends. I thought it a great opportunity to share the wisdom of my experience and profession with him.
Uh, not so much, it seemed. I told him what I did for a living and encouraged him to save as much as he could in the company’s 401(k). I offered to help him without charge if he needed guidance. He told me “No, that 401(k) stock market thing is a rip-off. I put my money into and it went down and never came back up, so six months later I took my money out.”
I didn’t say anything to him about investing after that, not a word. I feel kinda bad about that. You know that feeling you get when you believe you have the truth about something: finances, spiritual matters, family, health and fitness, or whatever else, and you don’t speak up? We feel like we failed someone because we had the truth they needed, and we didn’t share it because we feared it would make them mad, or they had their minds made up and just wouldn’t listen, or worse yet, they’d just laugh at us.
I get all those responses. Most days they don’t faze me, but other days (maybe because of the phase of the moon (you’d be disappointed without a little word play, right?)) those discussions threaten to send me to the edge of sanity (disclosure: my kids have probably sent me beyond that point already but who am I to be able to measure?).
But upon reflection, I decided not to think too harshly about the young fellow for a couple of reasons. One reason, of course, is that he does not have the life perspective to easily grasp the idea of long term results. I was asking him to think into the future twice the numbers of years he had been alive! Secondly, it occurred to me that I behave much the same way in other aspects of my life. How many of us make decisions with long-lasting effects based upon short term experience?
Given human nature, we are programmed to think that when the market goes down, we are never going to recover. Here’s a hard truth: markets typically recover in time, but you won’t if you cash in and sell at the low points. But you, worthy reader, have the wisdom of the ages for you read history, you understand the nature of investing, you have your cash reserves for emergencies, you buy a little when the market goes down, you sell a little when the market goes up, and above all you have a plan that you are sticking to. All that is left then, is to light the fire in the hearth, put on your fuzzy slippers and enjoy watching the world turn.