Did you prank anyone for April Fools’ day today? I can never seem to keep a straight enough face to fool anyone. If you got someone good, I’d love to hear about it.
A prank we’ve seen time and time again is the divergence between our heart and our mind during times of extreme market volatility. As we closed out the first quarter of 2016 with a bang many investors are likely feeling much better now than they did at the beginning of the quarter when asset prices for all things Canadian and commodities were heading down the toilet.
While the formula to buy low and sell high may sound like an easy one, for many DIY emotional investors, this past quarter was quite the opposite. January was a classic time to sell low (when panic was high) and March was a time to buy back at higher prices (fueled by the confidence in the bandwagon rebound). The result in this is a REAL realized loss.
Those working with a professional advisor or those who were disciplined enough to stay the course rode the roller coaster without realizing any loss. Even better are the ones who added to quality positions to take advantage of ‘cheap’ prices. The result in this scenario was a positive one and a vital step in conquering emotion as a quest to become, as Benjamin Graham (one of the best investors to ever live) calls it, an “intelligent investor”.
One of my personal favourite quotes from Benjamin Graham's world famous book 'The Intelligent Investor', is "the intelligent investor is a realist who sells to optimists and buys from pessimists."
Simply put, our money is emotional. We work very hard to earn it and so it makes absolute organic sense that one would feel emotional about the direction their portfolio takes during volatile and turbulent times. While volatility isn’t a new aspect of financial markets, it seems to catch investors off guard every time by pulling at their heart strings and whispering things like “but this time could be different…”
So, the next time you feel the market panic spreading (this will happen again, I promise you), don’t let yourself be fooled. Talk to a professional you trust, re-visit your long-term plan and assess your portfolio as a whole to make sure that it is comprised of good quality companies you are proud to own for the long term, companies that are able to survive the ebbs and flows of the market and companies you would be excited to scoop up more of while they are on sale.
This is why a disciplined investment approach, at its core, is based on diversification and asset allocation and further complimented by research, reporting and analysis. Working with an investment professional helps you to make sense of the noise and guides you to go beyond investment management to implement a full wealth management strategy that incorporates the financial planning, tax planning, estate planning and insurance planning necessary to keep more of what you’ve worked so hard to build.