Why do mistakes happen? Often, it is a result of someone moving too fast. Why do mistakes happen twice? Because that same someone kept moving fast and didn’t take time to reflect on their previous experience.
Measure twice and cut once, they say. Why? Because just like you can’t put the toothpaste back in the tube, you can’t “uncut” mismeasured material. Poor decisions come with consequences.
The solution to this riddle is reflection, but we tend to avoid reflection because (1) it doesn’t come naturally to us, and (2) it feels like it will slow us down. We are a busy, busy, busy culture. We approach life like the white rabbit, always frantic, always muttering, “Oh dear! Oh, dear! I shall be too late!”
Here’s a paradigm shifter, an adage that won’t seem too intuitive at first glance: sometimes you have to slow down to speed up.
Imagine giving someone chopsticks for the first time and telling them to eat a meal as fast as possible or even at their normal pace. This would be a humorous spectacle, and I’m willing to wager that this person would never learn to eat with chopsticks properly. Sometimes you have to slow down to speed up. Learning the art of eating with chopsticks properly will allow you to eat a meal at a familiar cadence eventually.
Moments for Reflection
2020 offered two key moments that are worthy of reflection.
Though 2020 feels like ages ago, right? Many of us are probably not inclined to reflect on a year that we’d prefer to forget.
Too often, we use the review mirror as a tool for regret rather than reflection. Here’s the difference – regret leads us to shame and embarrassment about a decision we wish we didn’t make. Reflection allows us to take a cerebral time machine and rethink our decision-making process. The benefits of hindsight allow us to see the impact of our process and our decisions clearly. The goal of reflection is not to cast judgment on your former self but rather to educate and inform your future self.
Now, let’s discuss those two key moments in 2020 that I am referring to…
On March 23, 2020, the stock market hit a bottom. We didn’t know this at the time, as “bottoms” are only defined in hindsight.
Bottoms are the point when all sellers are exhausted, and a group of contrarian buyers begins to shift the tides of sentiment. It is difficult to reflect on this particular moment in time (3/23/2020) and capture the full emotion and mood of the day. It was dreary, and we were wading in the unknown, and anxieties were high.
I remember one comment from an investor (not a client) that I recall vividly, “I don’t want to be convinced to stay the course, I don’t want to be encouraged to be patient. Yes, I might be making a bad decision, and I’m ok with that. I just want out [of stocks].” This was an I-can’t-take-it-anymore moment for this investor. I don’t know what action he took; I don’t know if he regretted that decision, and I don’t know how he pivoted coming out of the crisis, but I do know this investor would benefit from some reflection—a look back at his decisions and measuring the impact those decisions had.
As for me, I’m forced to reflect. Part of my job is reporting to clients their investment results. So, when I conduct reviews in March, April, and May of 2021, I am getting a clean look at the aftermath.
One of these recent client reviews stands out to me. This was a client that I exchanged text messages with during those dark moments of March. A client that felt inclined to make some big portfolio changes during those dreary days of March, changes that would’ve been regretted in hindsight. This client chose to trust my advice and defer any wholesale changes until the storm calmed. In this specific client review meeting, I went month by month and read off his investment results aloud. When I recited the results, I would acknowledge that these were compensations for his patience. Those twelve months of “aftermath” equated to (1) a six-figure paycheck (investment returns) for his patience and (2) no regrets.
In my own reflections, I, too, had a paradigm shift from 2020. The investor at his breaking point, which I mentioned earlier, had a big impact on me. He was right, it did feel unbearable, and he really didn’t want the canned advice he expected to get. Telling someone to be patient in the depths of calamity isn’t always welcome or impactful. Looking back, I misunderstood what was fueling my own endurance as an investor. It wasn’t superior patience, and it was hope. I’m not a very patient person in general, but hope is a different tool altogether. You build up the hope muscle by acquiring experiences and collecting testaments of how things worked out in the past. I’ve seen struggling markets rebound, and I’ve read an extensive amount of market history of others experiencing the same thing. I can recite both the crashes and the recoveries; I’ve committed these historical metrics to memory.
My optimism in the eye of the storm on March 23rd was grounded in the confidence of enduring markets and a pattern/consistency of historical recoveries. Optimism can be infectious, and it (infectious hope) is one of the greatest benefits an investor can glean from partnering with the right advisor.
In these March 23rd moments, people don’t need a lecture on patience, and they need to feel the hope in your tone, your posture, your words, and your actions.
The presidential election fell on November 3, 2020. This election, and the weeks and months leading up to it, were not lacking drama. We are living in polarizing times where the political tensions are high, and every media outlet – professional or personal (social media) – is littered with political opinions and perspectives.
These political anxieties of November 3rd poured over into investor anxieties about how markets would react to this election. Historically, politics have not reflected a strong correlation to market outcomes or provided any predictive power around future market results. Although the two – politics and markets – have an intertwined relationship with policies, regulations, tax codes, etc. The entrepreneurial spirit of the American business has navigated all political regimes with an enduring level of success. Regardless, that November 3rd moment led many investors to sit out of markets or recalibrate their portfolio based on their own political forecasts of how this would all play out.
Was November 3rd, and the month of November for that matter, devoid of drama? No, the media had a hay day with every day and every second of this election in November. And how did markets perform during all of this? November 2020 was one of the best months for markets in the last century, a top-ten month of all time. The exact opposite of what the consensus expectation was, right?
“The main purpose of the stock market is to make fools of as many men as possible.” – Bernard Baruch
The hardest part? These political anxieties that permeate our investing psyche seem never to go away. In 2020, the Election fear was soon replaced by concerns of which political party would win the runoff elections of Georgia and skew the senate’s power to one party or the other. This list of political anxieties is never-ending and ever-growing. There is always something the media will highlight to ruffle your feathers and prod you to change your portfolio/plan.
The reality is, you will probably struggle with some future pending political decisions, and I’d encourage you to try to root your investing reactions in something with substance and validity. Reflect on November 2020. Was that the outcome you expected? (For markets, not politics). Humans are horrible at forecasting matters like this. This is why your plan is so important. You need your financial plan to be established and in action so that your plan can lead your decision-making, not your political forecasts or intuitions.
The Road Less Traveled
Like I mentioned earlier, most will not reflect. They will happily let 2020 come and go with no reflection, introspection, dialogue, or takeaways, just like the white rabbit, onto the next thing. I’d encourage you to slow down and look for the wisdom and clues that history is leaving behind for you.
The aftermath of March 23rd should help to fill up your hope gas tank. We understand that markets can price down quickly and violently. We also know that for every downturn, history has provided an equal and greater recovery. Hope is exercising a belief and optimism that these market patterns will continue.
November 3rd taught us to expect the unexpected. Markets don’t play by our rules, markets don’t share our political perspectives, and markets are not at the mercy of our assumptions or expectations. Markets march to the beat of their own drum. We are horrible at forecasting or predicting short-term market outcomes. Therefore we should redirect that forecasting energy into financial planning and mapping out our goals, desires, and aspirations in a clear manner.
In the words of Socrates, “The unexamined life is not worth living.” So, when it comes to investing, I’d encourage you to plan, reflect, pivot, and repeat. Don’t miss out on the treasure’s history leaves behind for you.