Mar 1, 2020

Did you know that on average there has been a market correction “every year” since 1900?

Corrections are normal part of the game - yet when markets start tumbling like they have this week (close to 10%) many people hit their pain point and start to sell fearing a death spiral.  Between 1900 and 2015 there were 34 bear markets (defined as a 20% fall from a peak)…that is one bear market every 3 years.

When markets sink like they have, it affects all of us in some way and reminds us of the importance of having a financial plan.  When you have a plan it means you are prepared for volatility – no matter how dramatic.

When we think about investing and saving for our future, we correlate this to financial management and yet downplay another critical factor -  emotional management!

To win at the financial management game means  you have the emotional fortitude to stay in for the long term.

Between 1985 and 2015, the S&P 500 (index) returned an average of 10.3% yet the average investor made only 3.7%.  That’s huge differential.  Why is this gap so large?  Its called human nature…emotions get a hold of us and we do stupid things like take money out at exactly the wrong time.    The problem is that if you miss out on the best individual days from those 30 years it literally cuts your returns in half.

You may or may not remember but it was doomsday in 2008 when banks were collapsing.  Fear didn’t reward those who bailed.  It rewarded those who had the courage to stick with their plan.

As Warren Buffett stated “The stock market is a device for transferring money from the impatient to the patient”

Whether markets, your job or your personal life, the key to dealing with uncertainty isn’t by trying to predict the future.  It is by focusing on what you can control rather than what you can’t.

Here’s some questions and to do’s for managing uncertainty:

• Ask yourself what factors can you control? Focus on them. List them.
• What are the factors that you can’t control?  Do what you can to influence them, but don’t obsess over them.
• Shift to an Internal Locus of control.  This means you perceive yourself to have more control than the environment over your life.  If for example, you see that you are fully responsible for your happiness and success, you have an internal locus of control.  People with an internal locus of control tend to be happier and more proactive than people with an external locus of control.
• Focus on action, not worrying.
• What would I do if this situation/problem did not exist in my life?” Do that!

Have a great weekend, Karl

  • Quote:  “Give your heart permission to let go of the need for certainty and leave space for the unknown.”   Amber Cantorna

Karl Choltus

Deep thinking Canadian sharing thoughts created in the shower.