No one ever said investing was easy. One year you’re surprised by a global pandemic that knocks sharemarkets down 30% in a month. If you manage to hang on through that, you enjoy a nice recovery, but just as the pandemic is burning out, inflation shifts from “transitory” to very sticky. That disrupts markets. Then, a large country with a menacing leader, unexpectedly invades their next-door neighbour. That disrupts markets.

Market disruptions are nothing new. For as long as we’ve been in business, we’ve had to reassure clients to just remain patient though every imaginable event. Wars, terrorist attacks, earthquakes, volcanoes, tsunamis, nuclear meltdowns, financial catastrophes, debt downgrades, regional and global pandemics. Despite getting past these distressing events, we’ve arrived at this point, to find another distressing event. It’s a reality of investing. As we’ve said previously, investing is navigating your emotions through history as it’s being written.

Advisers can’t control or manage markets. They are uncertain and ever changing. Our investment role is portfolio management. In that respect, we have researched and settled on a robust investment philosophy and portfolio management process. It’s not reactionary. Upon meeting clients, we look to address their technical and planning needs. With a full understanding of their affairs and their goals, we can then build their portfolio. Once that’s in place, the biggest challenge remains behaviour.

Usually, we’re successful in keeping clients where they need to be, but along the way some clients have jumped off. Investing or more particularly, the daily pricing of financial markets wasn’t for them. Others demanded the “safety” of cash in torrid times. They’d reassess when things were “more certain”. The passage of time shows those who have chosen to disregard our advice have been the poorer for it.

It would be wrong to suggest behavioural issues only come from investors who are panicked by volatility, corrections, or media headlines about doom. Someone may be slowing down cognitively, or they may be going through a traumatic or stressful life event. These things can prompt out of character decisions. Someone may suddenly believe that bitcoin at an all-time high is the right place for their retirement savings. It’s our job to convince them otherwise.

Why do some investors react, and others don’t? Can investors overcome it and become either disinterested or resilient? It can depend on a variety of factors. Who you are, your background, your education, your profession, or your outlook on life. Mix these factors in with whatever is confronting a person at a particular moment, and it may prompt a particular outcome.

Take this story from the initial Covid-19 panic. A client in the medical field calls their adviser in a panic, needing to liquidate everything. They and their colleagues were shocked by their medical insights about the virus. Unfortunately, they made the mistake of attempting to draw financial and economic conclusions from those insights. And those conclusions were horrific. Their adviser tactfully argued the medical realities offered no insight into financial markets, nor the future. Financial markets had already fallen significantly, but they believed those falls were only the beginning.

Despite the counselling, the adviser had to accept their wishes. The client exited to cash almost as the market bottomed in March 2020. A complex and sensitive case. High-level professional insights are important to a person’s sense of self. Disputing them is challenging, but this should add to every investor’s awareness. Professional insights are extremely valuable in context, but they can be detrimental out of context. This highlights that intelligence, education, and career accomplishments aren’t predictors of investment success.

We all must accept a truth about ourselves: our brains aren’t made for the world we inhabit. We’re wired to be hyper-aware and alert to potential danger. At one time we lived in caves, had to hunt for food, had to avoid predators who wanted to eat us, and be on the lookout for rival tribes who might be coming to enslave or worse. Each day was potentially your last if you weren’t paying attention. We exist today because our ancestors navigated that danger. Our wiring hasn’t evolved to accommodate a much more placid environment.

Knowing this, the advice and retirement industry have tried everything to help investors to relax, stay cool, or just harden up in the face of volatility. There’s plenty of educational stuff around, but many move away from the data. Some stay in the investment realm and go heavy on the Warren Buffett quotes, while some branch off and invoke Winston Churchill. Others get a little more obscure and start quoting Greek or Roman stoics from 2000 years ago or refer to Eastern religions. Everything to try and master the mind.

How relevant is any of this? It raises the question, what are clients thinking? Financial professionals think we have special insights because we have also been there. At one point a torrid market has distracted us all from dinner, a movie, or it even ruined our weekend. Do clients draw on Warren Buffett quotes, look at a picture of Winston Churchill or thumb through books on stoicism or Zen Buddhism when markets get tough?

As we’ve conducted reviews in recent weeks we asked some clients, who’ve traditionally been calm, how they handle volatility. It’s not that complicated. Here’s what they told us:

Maybe it’s down, but you told us not to look when it’s rough, so now we don’t look.

I learned a lot from the GFC. Like you said everything would recover and everything came back, so when Covid happened it didn’t worry me.

Kind of like an ostrich, I just stick my head in the sand.

We only look a couple of times a year.

And our favourite…

We’re probably not great investors because we don’t look at our account much.

The great investors don’t look at their account much. It’s that simple. None of this is to say that the teachings of great minds aren’t helpful to some investors, or that these investors won’t need some reassurance or support in the future, but they’ve managed to not let themselves get affected by a very simple trick. They don’t look.

Not looking means no agonising over movements beyond your control. This equals no unnecessary distractions. And if you’re not distracted, you can get on with living life. Maybe that involves reading about Warren Buffett, Winston Churchill, Seneca, or Buddha, but you’re doing it for pleasure, not to dodge discomfort.

Shared with permission of our licensee FYG Planners and friends at Mancell Group.

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