The four most expensive words in the English language are “This time it’s different,” according to the famous maxim by Sir John Templeton. The most valuable five-word antithesis to this may be “Time is on my side,” famously covered by the Rolling stones in 1964.
“This time is different” is a ubiquitous phrase with over 7 billion google search results. Yet it could be extrapolated in two different ways when it comes to investing between human behavior and market history.
Saying “this time will be different” could mean that you expect a future bubble not to burst and the party not to end when, historically, that is never the case. This maxim goes along the lines that “those who fail to learn from the past are doomed to repeat it.”
Both statements seem to be true about our tendency to believe we won’t make the same mistake again and that somehow what’s occurring in the present is completely unique, even when the underlying fundamentals of the situation may be similar. It’s a form of self-delusion and, sometimes, mass-delusion, and it has been a major contributing factor to many of our worst financial disasters and personal losses.
When greed sets in and we begin to follow the madness of the crowd into certain stocks, sectors or the market in general, we may have the facts, but begin to ignore the warning signs and at times may abandon our own process and philosophies. With greed, we seem to lose the perspective of time, like Cinderella dancing at the ball before the clock strikes at midnight.
Even more egregious, many people suffer from hindsight bias, saying that they “knew it all along,” after examining the aftermath of facts and figures from the dot-com crash of ’01, the real estate debacle of ‘08 to both bitcoin and cannabis stocks going up in smoke last year. The rear-view mirror is truly always clearer than the windshield according to the Oracle of Omaha.
Perhaps this time is ALWAYS different, as every crash is unique like a snowflake, but this time is NEVER different as studies show people continue to get very emotional with their investments from headline news and market swings and end up making poor market timing decisions.
People whom are invested too aggressively based on their goals and are in a state of euphoria may “overstay” their welcome at the ball, and end up losing their shirt when volatility strikes, while those too skittish and fearful may cash-out (even from diversified portfolios) at exactly the wrong time.
Realizing that you may have significant time in front of you to ride out market volatility is key, even if you are in your 60’s, 70’s or 80’s, while ensuring you have the appropriate strategy in place.
The next time volatility hits perhaps tune down the headline news and tune up some Stones.
With fear, we seem to forget we are investing for a time frame of perhaps many decades into the future and end up making dysfunctional short term moves. Knowing the past bear markets as well as their swift bull market rebounds are both key to staying calm and disciplined.
For the past two decades since the Clinton era, the average US investor has returned only 3.88%/yr (greatly lower than the US markets based on Dalbar studies) which indicates many people of all ages are guilty of a combination of poor market timing and lack of a disciplined investment process.
For long-term, disciplined investors, the answer to market volatility isn’t to jump in and out of the market. Instead, it’s to stick with a well-balanced portfolio that can weather upcoming storms. Sound Investing truly is about your “time in the market” and not “timing” the market.
Markets have generated great returns despite climbing a constant “wall of worry” since the market bottom March 9th of 2009. This is still the case with heightened focus on geopolitical unrest in the Middle East and global trade. So far in 2020, markets have taken these developments in stride, with only a couple of small pullbacks. However, not only could these issues intensify over the course of the year, but the upcoming presidential elections could spur investor concerns. Unforeseen events are bound to occur as well.
Ultimately, investing and achieving long-term goals are as much about our behavior as they are about having an appropriate investment plan and strategy in place.
Below is one chart to put this all-in perspective:
Volatility has been quite low
Battling our own natural tendencies is one of the challenges of investing. This is especially true today since the relative market calm of the past year may have left some investors unprepared for rising volatility. The largest intra-year decline in 2019 was only 7%, roughly half of the historical average of about 14% pullbacks per year.
The bottom line? Even experienced investors can overreact to short-term headlines that drive fear and panic. Those investors who are better equipped to handle this by staying invested and diversified, especially by preparing when markets are calm, are in a better position to achieve their goals.
No one is clever enough to predict the next market crash or black swan typed event. Each time is always different, but in most cases human behavior is never different. Now is the best time for you to mentally prepare for how you will react to future volatility and work to maintain a long-term focus for your financial future, as time may be on your side.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email [email protected]. Get Started Today: Contact Us .
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.