Article Archive
More Radom Thoughts About a Turbulen Market
Issue: November 2008
By: Jerry Mosher, CFP
I’m sure you are experiencing one of a variety of moods that might include concern, dismay, anxiety, anger, distrust, fear or some varying combination of all of them. We have certainly experienced a series of precedent-setting events in recent weeks that you are no doubt trying to sort out. I’m not sure I have it all sorted out either, but there are some fundamentals, axioms and practices that I have found to be useful in this type of environment.
It’s important to remember your time horizon, including retirement years, to determine if a decline in market prices will have a major impact on lifetime financial viability, or whether it is instead a temporary change in market value that will not impact you unless you intend to make major withdrawals while the market is declining.
The term “economic cycle” refers to the fact that the marketplace goes through periods of expansion and contraction and it is an anticipated phenomenon. An associated byproduct of these cycles is stock market volatility, which is a normal part of stock market investing. The circumstances that generate the swings will change but the fact that they will occur does not. One truth about the market is that you are historically rewarded with a higher return if you are willing to subject yourself to the unpleasantness of expanded volatility along the way. The current environment clearly qualifies as unpleasant.
Whenever markets decline it is the result of a set of converging circumstances. The specific circumstances change but the fact they exist does not. However, human nature is such that, because of the trauma inflicted by the decline, there is a tendency to believe that “this time it really is different.” This is certainly a legitimate assessment, but not one that has proven accurate in the past.
Many investment advisors counsel customers to refrain from making major decisions in times of anxiety and stress. In fact, historically, times of maximum stress have proven to represent market lows and excellent buying opportunities when historians reflect back on the data. One vendor recently wrote, “We don’t know when the pain will end, but we do know it will end. The momentum of fear is merely the polar opposite of the momentum of optimism….the same human flaws are at work!” Sir John Templeton stated, “The time to buy is at the point of maximum pessimism!”
It’s useful to remember that we have handled dilemmas before and we will handle them again. The power of human ingenuity can work for us and against us. The key is to not panic because panic just exacerbates any problem. Part of the rescue plan is to create liquidity in the marketplace so that normal transactions can occur. Our economic system is built on the ability to extend credit and we must have institutions willing to do so. It is good for everyone to have a functioning economy. One vendor commented in a newsletter, “There is no rule that unexpected surprises are only negative ones,” although it might be hard to convince you of that at this very moment.
My best advice is to dramatically limit your daily dosage of the news and TV, don’t open your account statements for a year, and remember to take a walk with family and friends on a sunny day while remembering three things that made you happy that day.
Jerry Mosher, CFP® is a 30 year veteran of the financial planning industry and is president of Mosher & Ellis Financial Planning in Lafayette, California. He has been selected three times as one of the 150 best financial advisers for doctors by Medical Economics. Jerry may be reached at (925) 284-9470. Securities offered through AMERICAN INVESTORS COMPANY Member NASD/SIPC.
