As Mill Creek Capital Advisors notes, investors are facing two divergent fears in today’s turbulent economy: the fear that equity markets will retest their March 23 lows and fall further, and a fear of missing opportunities for strong gains if markets move higher.
I admit, when it comes to investing, I struggle with that fear, and it has led to some significant mistakes, such as in 2008 when I was heavily invested in bank stocks during a time when financial institutions collapsed. My mistake was that I bought too much too soon after the crash. I also underestimated how far the market would fall before it turned around.
How many of you are facing this fear now? You’re not alone. I have incredibly intelligent, experienced advisers I turn to for market insight and direction. I’ve been told, ‘Don’t buy until the stock is down by 40 percent. I’m resisting the urge. How do I know that we’ll fall that far? What if a stock I am after goes down 25 or 30 percent, and I miss an opportunity to buy at a lower price? I remind myself of the mistake I made in 2008 when I bought too soon; still, we don’t know what today’s markets will do. And, if you’re fully invested and too leveraged, it doesn’t matter how low the market goes, you’re not prepared to buy now.
Also, there is a whole group of people who struggle with fear to the extent they never get into the market and they miss the ride back up. Some got out of the market in 2008 after suffering serious losses and never got back in.
Regardless, we all want to know: Are we there yet? How much farther will the market fall? How much lower will Stock ABC drop? Is now the time to hold — or buy?
There are no answers for these questions. But I have learned to remember this: It’s hard to quiet a fear of missing out, but it’s much harder to rebound if you buy based on an emotional response. We can’t control what happens, but we can control how we react.
We are all emotional now. We are worried about the health of our loved ones, our colleagues and our communities. We are concerned about the economy and jobs — about financial stability and the future.
We inherently have a sense of urgency to make it all better. Sometimes, all we can do is wait and see. And we can trust our resiliency as an economy and a country. The crash that happened in 2008 generally happens only two or three times in a person’s life. In a December 2008 interview, the late financial investor Martin J. Whitman said he saw the opportunity of a lifetime. Rarely is there a chance to buy great businesses at attractive prices.
Sir John Templeton, in “16 Rules for Investment Success,” said this: The only way to avoid mistakes is not to invest — which is the biggest mistake of all.
Umberto P. Fedeli is president and CEO at The Fedeli Group