“Stocks won’t make you wealthy. Your behavior around stocks makes you wealthy”
I know enough to know that clients don’t always appreciate hearing the following from their advisor at a time like this:
-“Stay the course…..”
-“Focus on the long-term…..”
-“Markets always recover…..”
-“We’ll weather this storm……”
-“Buffett says to be greedy when others are fearful….”
–“This too shall pass….”
At a certain point, you’ve heard it all before and you’re sick of hearing it. You just want the pain to stop, which is understandable. Imagine calling your financial advisor and saying “I want to sell everything, I’m really worried” and they responded “okay no problem”. That’s a tip that you don’t really have an advisor, but an order taker.
Order takers confirm all the fears a client may have at a given time and will help hit that “sell” button, which could end up being a tremendous cost to the client. Advisors are a voice of reason at all times and will not always lead the client to instant happiness, but better odds of long-term success.
Imagine going to a doctor and telling them what medicine you think you should be prescribed. It would be quite the liability for the doctor to give you whatever you wanted, and it will probably worsen your health. Thankfully for society’s benefit, doctors are not like Burger King and you can’t have it your way.
The reason many financial advisors sound like such broken records during these sharp market declines is because we know the data, and we know what the alternatives will bring. Right now a 10 year US Treasury Note is paying about 0.75%. Do we think global capitalism will fail to earn better returns than that over the next decade?
Further, if you sell your stock positions in fear during a market decline, when would you ever re-enter? Say you’re sitting on the sidelines and the market rises 15%, now what’s your next move? Buy back in and admit you were wrong? Or wait for a drop back to the prior point where you thought it was a good place to sell originally (which may never happen)?
In order to earn the premium return that stocks have offered historically, at times we must suffer through premium pain. Trying to stop the pain will likely stop the potential of premium returns. In all aspects of life there are very few shortcuts without side effects. Do you want to be in great shape? Then you need to get in the gym and suffer, and avoid all the delicious foods our society tempts us with.
The pain of investing can be sharp quick declines like what has been happening the last few weeks, or multi year stretches of little to no return at all. When will the pain stop? I have no idea, but I do have an excellent painkiller to prescribe. It’s called turning off the news, stop checking financial websites, and stop logging in to view your account balance. This prescription is now offered for free from my firm, and I have an unlimited quantity.