Behavioral Finance Investing Observations

19 Investing Observations Through the COVID-19 Recovery 

“Everybody has a plan until they get punched in the mouth” is an often-used maxim by former heavyweight champion “Iron” Mike Tyson. This saying can be rationalized that It’s how you react to adversity that defines you, not the adversity itself, whether you suffer a blow from the stock market, your job, a health issue or any sort of traffic jam in life.

Getting a bit more metaphysical, investing is both an art and a science. Controlling the things that only you can control (such as your emotions) is an art. The science of investing involves the knowledge, insight and application of facts based on research, evidence, and market history.

Living and working from home (the new normal) with nothing better to do than to watch 24/7 news shows covering the pandemic, politics and the stock market can encourage investors of all ages to get off their couch and suddenly take swift and substantial actions with their money at exactly the wrong time.

While there is no knowing what the next “black swan” event may be, we hope the following observations, thoughts and quotes may help you to look at investing with a calmer, more rationale and perhaps scientific mindset.    

19 Observations and Quotes:

1. Watch the quants: Investor sentiment can be a significant driver of the stock market (fear and greed) yet as we have discussed before, a third or more of trades are placed by quants and algorithms in extreme market conditions while accelerating stock velocity beyond human control. While money never sleeps, perhaps neither do the robots.

Deep learning computers powered by AI are reading tweets and the news overnight while you have been sleeping and are trading away at the opening bell. This is “rewiring” Wall Street itself, sending billions of dollars towards data centers and computer-science jobs. Perhaps a CIS degree may be of more value for future college grads interested in the stock market than a Wharton MBA.

2. Stocks and earnings do not seem to always travel in the same direction with stocks continually ignoring economic forecasts and bleak data as traders find solace in the Fed “life support” money, low rates and optimism as America reopens. Famed economist, author and investor Benjamin Graham eloquently observed, “in the short run, the market is a voting machine. In the long run, it is a weighing machine.” Stocks can be a forward-looking indicator 6-12 months out, while already pricing in more recent negative news.

3. Fundamental analysis and the basics of economic evaluation of a stock or of the whole stock market in general seems to matter less when the whole market is cycling down or crashing, as there are other factors that move the market, some of which appear to be “canceling out” bad and good news simultaneously as we witnessed firsthand in 2020.

4. Fear and greed are magnified in bear markets – as some people get a wee-bit too overconfident, while others panic, both operating on emotion – not strategy or process. You may make most of your money in a bear market, but you may not recognize it at the time while you continue to rebalance, recalibrate, “buy low” and dollar cost average (DCA) regardless of market conditions.

5. Dial Down the Media: The “experts” and financial pundits on the news are only providing an opinion, and do not have a working crystal ball any better than you.  This goes along my favorite adage that “he who lives by the crystal ball is destined to eat ground glass.” Just remember there is an entertainment value (metric) of financial news shows (and their high-powered guests) fueled by advertisers and deep pockets.

6. Look for patterns: In the market, like life and nature, it’s essential to look for patterns. Bear markets do not last forever and neither do bulls, which provides visible opportunity to buy low and high- like buying hurricane equipment and impact windows in winter months. Yet investors seem to never follow course.

7. Know your IPS: Investment Policy Statements (IPS) provide specific guidelines for informed decision-making of your money, while serving as an overall financial blueprint to investing to help meet your long-term goals.

Investing your life savings without an IPS is like driving across a foreign country without a GPS or map. The IPS can help you to better “stay the course” mentally through market volatility and scary financial headlines while maintaining a less emotional and more disciplined process.

8. Develop a process: Process (based on one’s investment philosophy) helps to keep investors (and advisors!) disciplined, focused, rational, and unemotional, when the rest of the world is not. Our core investment maxim is that “performance without process is just luck.”

9. Market timing is a fool’s game. Trying to time the bottom of a bear market can be hazardous to your wealth. Famed Fidelity guru Peter Lynch theorized that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

10. Patience is key: Checking your money around the clock is like opening the door to the oven every 10 minutes when you are baking cookies and letting the heat out. Investing should not provide excitement. It should be more like watching paint dry or watching grass grow. As eloquently stated by economist Paul Samuelson, “if you want excitement, take $800 and go to Las Vegas.”

11. Know your indicators: The stock market is what is known as a “leading economic indicator.” This is a measure of economic recovery that indicates progress and recovery before the actual economy does. There are many other unusual indicators that may come up in the news to take in with a grain of salt. They may include indicators that mention women’s hemlines, men’s underwear, lipstick purchases, cardboard boxes, Big Mac consumption, Champaign and the RV index to name a few

12. What’s your Investor IQ? Everyone thinks they are a “genius” in a bull market, but when it is down… they may find that they are not as smart as they thought. There is no direct correlation between your age, job, status and “intelligence IQ” and your “investor IQ.” As Berkshire Hathaway’s Charlie Munger justified “a lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.

13. Listen to the Baron: Buying low is easier said than done. Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets.” He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon

14. Sir John: Famed investor John Templeton once commented that “the four most expensive words in the English language are ‘this time it’s different.” Yet we have discussed in many past blogs that each crash and recovery is ALWAYS different (like a snowflake), but human behavior seems NEVER to be different from investor behavior surveys continually indicating each year how many people greatly underperform the markets and their own expectations over time.

15. Don’t derail yourself: In the end, we remind ourselves and investors that we need to get out of our own way. Benjamin Graham noted in his book that “The investor’s chief problem—and his worst enemy—is likely to be himself. In the end, how your investments behave is much less important than how you behave.”

16. Question the crowd: Don’t invest based on headlines or social media comments, invest based on your financial plan. For decades investing legend Bob Farrell, a top Wall Street strategist known for predicting changes in overall stock market direction notably said, “When all the experts and forecasts agree, something else is going to happen.”

Maintaining a balanced, if not slightly contrarian mindset can help your process of evaluation. Contrarian Investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets.

17. Optical Illusion: The Dow Jones (DJIA) index is now up over 14K to 33,500 today (over 70%) since the bottom from March of 2020. It took almost a 10K point swing back up just to break even by last November from the February 2020 high. Consider the fact that if you lose half your money you need to “double it’ to get back to even.

18. New normal: This “man-made” recession was initiated by literally (and amazingly) shutting down the United States when we were operating at full capacity. This caused a harsh fiscal reaction, like an exogenous shock to the system. As 70% of U.S. GDP is consumer driven, even if America is “turned back on” by the Fourth of July weekend as many hope, not all jobs as we knew them may return, nor the changes we have all made with living, work, life, travel, shopping and retirement. We are in fact living the “new normal” like it or not.

19. Keep Investing: Disciplined investing is truly about your time in the market and not “timing the market.” If you wait for happy headlines or hopeful government statistics for a clue for when to invest, you’ll be too late. By the time you read euphoric, “bottle-popping” headlines from the real estate market to stocks, there are already people selling to take a profit. We have again seen over the past year (as in 2009) that stocks typically rally before a recession is over and continue that course for more than a few years.

Jon here. Wealth planning based on your IPS (investor policy statement) should help to define your long-term goals and short-term actions. With many people now experiencing a retirement longer than their working years, holistic planning is essential. Once you have a financial plan, stick to it! How you manage your plan, portfolio and emotional mindset in the short term can greatly affect your financial health and well-being for the long run.

For more information on our firm or to get in touch with Jon Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.comGet Started Today.

You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. 

The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without Ulin & Co. Wealth Management’s or IFP’s express prior written consent.

Share this:

Subscribe to our weekly newsletter for exclusive content

  • This field is for validation purposes and should be left unchanged.