My wife, her mother, my mom, my sister, and many of you probably go shopping the day after Thanksgiving every year. Why? That is usually when the best sales are happening, right? You know it… and you can plan for it. You actually get sale papers that will tell you exactly what items are going on sale and exactly the price…for a limited time. Unfortunately, the stock market does not work that way. Certainly, on average we get a run of the mill 30% pullback one out of about every five year – for a limited time. These declines seem to come out of the clear blue sky and only months later do the talking heads in the media explain to us what happened. You would think during these “Market Sales,” my phone would ring off the hook from investors wanting to buy at these great prices. However, the opposite is usually the case. I spend most of my time reassuring clients that the world is not coming to an end and that this too shall pass.
Our most recent crisis is of course the Coronavirus. The markets went from market high to bear market in record time. As the market has increased, especially concentrated in a handful of tech companies, many investors tend to get FOMO – Fear of Missing Out! The problem is that it is typically too late. You cannot reverse the clock and buy the stocks now for a return that has already happened. So, what should you do? When you feel FOMO (or fear) coming on, consider the following:
First and foremost, call your advisor to review your Financial Plan’s investment strategy that was constructed when anxiety levels were lower. When markets are up or down, sometimes the best thing to do might just be rebalancing.
- Consider your past experiences and remember the markets are going to fluctuate, sometimes wildly.
- Are you speculating or investing? If a stock has experienced a short-term boost (Tesla up 800% in 1 year), what is the likelihood that it is going up 1,600% in 2 years—possible but not probable?
- If one of your darlings has fallen, what was the reason? Was it a short-term decline with the market or a stock specific decline because of fundamentals?
- In scenario 2 or 3 above, what are your options? Remember it does not have to be all or nothing.
- Whatever you are considering ask:
- If I am right and act, how will it help my long-term plan?
- If I am wrong and act, how will it hurt my long-term plan?
- Lastly, have a discussion about what you are going to do the next time the crisis de jour comes around, because there will be another.
Remember, in the words of the great Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful”.
Shane Gaddy, CFP®, C(k)P®, CPFA
Managing Partner-Financial Planner