Vast landscapes out in nature are magnificent from the viewpoints, with a peaceful quality about them, but when we’re actually in those valleys, despite their sheer beauty, the reality isn’t what we expected. Those very valleys, however, cut by rivers, rocks, dense forests & muddy terrain enhance that magnificence. They’re a necessary evil. Likewise, at the top of a mountain, a picture might resemble tranquillity, and yet the wind howls, the clouds blow over & you’re wet! Such are the markets – beautiful from far, but far from beautiful.
Having recently completed two exquisite ultra trail runs – Whale of Trail in Cape Agulhas and Salamon Cappadocia Ultra Trail in Turkey – whilst I was running through varied of terrain, I went through the motions of loving it, cursing it, understanding it and feeling humbled by it, only to feel that dread again knowing what I had to endure to get to the other side. Yet, at the end of it all, I felt an enormous sense of pride, relief and gratitude for having experienced the adventure, having the grit, tenacity and resilience to push through, and being able to relish in the joys of completing the challenge. What goes up, must come down. And what comes down, must go up again. Repeat. We need to work through the pain to appreciate the gains. And some mountains are higher than others. This is the way of the markets.
Every investor experiences the emotional turmoil of investing; it’s natural. It’s predictable. It’s human nature. It’s also one of the most significant areas where we, as financial advisors, can add value. Emotions destroy wealth. In the words of Warren Buffet, “If you cannot control your emotions, you cannot control your money”. We underestimate the power of the mind. This is a fundamental reason for my love of endurance trail running – The mind carries me when my body wants to stop.
With all the negativity in the markets of late, it feels like we are constantly knocked down by another storm, and we want to wait for things to calm down before we invest more of our hard-earned money. Guess what? There is always going to be something unexpected that spooks the market. There is always going to be volatility. Volatility isn’t the monster. It’s ourselves.
Data has shown that bull markets last five times as long as bear markets, and the gains made from these bull markets are around five times as much as the losses from the bear markets. The truth is, we expect markets to make us money; we expect them to trend upwards. Hence when they do, it’s a non-event. It’s when the unexpected happens, and markets react, that investors become spooked and want to jump on the band wagon of fear, adding fuel to the media-infested fire – Negative news sells!
The pain of losing money is felt twice as much as the pleasure of gaining the same amount. When climbing uphill, exhausted, with the icy winds blowing wildly at you, we quickly forget the treat we’re in for at the top. And being the funny creatures that we are, once at the top, we stop for but a second before we lose ourselves in the freedom of running downhill into the vast valley below, quickly forgetting the necessary pain we endured to get there, and taking for granted the downhill free fall. If we can only be mindful of this when markets pull back; when faced with the choices of disinvesting – realising the paper loss – and adding more to the market at a reduced price – seeing the investment opportunity – we tend to forget we have a third option: doing nothing. This is an active decision. We often think that we need to react to the negative news, and so by all means, react. Just choose the right reaction.
Remember the WHY, the PURPOSE, the reason for wanting to invest in the first place.
We are guaranteed to lose money in the short-term, but if we can control our emotions, and make the decision not to react to the markets and the media, we will be rewarded with capital growth over time. Short term losses are part of long-term gains, just as pain is part of endurance trail running. We need to expect it; not be surprised by it. Dig deep. Run through the discomfort. Weather the storm. Every shadow has it sunshine.