Money and emotion are uneasy bedfellows. Back in 2007 and 2008, the markets were getting hammered. It was an emotional time for people. The lesson we learned in a big way was that it was our ability to separate these two things, money and emotion, that saved us, and saved our clients.
LOGIC AND HISTORICAL PATTERNS WIN OUT OVER TIME, IF YOU CAN KEEP A COOL HEAD- - RONALD SALA AND DAN HERNANDEZ, SENIOR FINANCIAL REPRESENTATIVES
In ‘07 and ‘08, the market went down close to 60% in a 15 month period. People’s beliefs got shaken. Anyone who invests money is taught that the market does good long-term and to stay the course in rough weather. But that’s easier said than done, and we had to work with what clients could tolerate. We were having conversations where clients were down 30%, 40%.
That’s when having a little bit of distance from the situation becomes key. We were able to think objectively, long-term. We invest in good companies – even if the market is down, the companies aren’t going anywhere. We could see that when the crisis was over, the market would bounce back. We couldn’t know when, but clients who had faith in long-term vision were most able to minimize their losses.
The period of time around 9/11 was similar, if shorter-lived. After a week, the average person may have been down 15% to 20%. A cataclysm like that changes a lot about the world. But it doesn’t change everything. What it doesn’t change is this: Coca-Cola is still in the business of selling soda. But that’s easy to forget when you’re watching your own account plummet. That’s our task – to be able to operate without that emotion.
The flip side is something like the tech boom in the late 90s. Everyone was making money, you could throw dart at a board and pick a winning stock. But like fear, greed is an emotion, and it causes bad decisions too. You can lose big sums of money if all you’re working with is exuberance.
It’s the same thing now, with bitcoin and cannabis. Everyone talks about making easy money at parties, but people don’t talk about their losses publicly in the same way – people don’t say they bought bitcoin and it went down 80% at a party. You have to be smart.
All of this is true on a smaller scale, too. Widows sometimes come to us very soon after their spouse has passed, and want to try to sort everything out, but they’re often not in the best place emotionally to do that. We encourage them to grieve before turning to their finances.
A less intense, but much more common example: we specialize in retirement planning, and people these days have to provide for themselves more than ever before. Your job and the government are doing less than ever for you. That’s stressful. We help take the stress out of it.
We see the big picture. You know, as horrible as 2007 and 2008 were, four to five years later, the market rebounded, and overall market growth in the last ten year period is well within the historical norm of 6-7% growth a year. That’s a good lesson. Logic and historical patterns win out over time, if you can keep a cool head. As financial advisors, it’s our job to do so.
Past performance is no guarantee of future results.