Become a better investor by asking, “And then what?”
Successful investors all share the same qualities:
- They have faith the markets will be up in the future.
- They have patience, and understand that results will only be realized over the long run.
- They have discipline to stick with their plan, and never react to temporary market events.
Having said this, I accept that successful investing does not come naturally. We are humans, not computers, and our kind has long survived by running away from scary things.
A free-falling stock market is a scary thing. It triggers an innate human bias called "recency ." Ignoring long-term insights, we give much greater weight to what is happening here and now. Our impulse is to toss out the thoughtful investment plan we created when logic reigned, and sell in a survival-mode panic.
For an investor, it’s a big mistake to forget the market’s long-term upward trend, and focus instead on today’s pandemic-driven market volatility and scary economics.
In my career, I’ve witnessed three ugly stock markets before this one. In late 1987 (right after I began to manage my first brokerage firm), the S&P 500 Index dropped 33.5% in 3 months, including 20.4% on Black Monday. From March 2000 – October 2002, it dropped 49.1% in 30 months. From October 2007 – March 2009, it dropped 56.4% in 17 months.
Each time, there was widespread terror and panic. And yet, by the beginning of each of the next bear markets, the S&P 500 had grown. In 1987, it was at 338. It was 1527 in 2000, and 1565 in 2007. By February 15, 2020, it was 3386. After each decline, the market recovered, to reach new highs.
To survive the current crisis, take a step back and ask: “And then what?” The answer is, we will conquer the coronavirus, one way or the other. We will be let out of our homes. We will go back to work. The economy will recover. The stock market will recover, to reach new highs. This too shall pass.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.