In our modern world, it is more and more common to talk about our emotions. Largely, this is a good thing. But there is also a danger that these emotions will get out of control if we talk about and focus on them too much.
There’s a lot of literature out there for financial advisers about how to design a portfolio to prevent clients panicking, or how to talk to clients to prevent them from panicking. We think this implies that clients are not particularly intelligent, and have no powers of reason – which we simply don’t agree with.
What we do know for a fact is that for most people to live the retirement they want, they need to be invested in the greatest companies of the world. But owning these companies also comes with a commitment to ourselves – a commitment not to panic when there is a downturn. It’s not a question of if, it’s a question of when.
Of course, it’s easier said than done though, when you’re watching your balance falling each week or each month – but we need to stick to our guns and not panic.
Essentially, when the markets fall, it is simply someone offering you less than you’d expect for your shares. If you owned a million-dollar house and someone knocked on your door and offered you $500,000 for it, you’d close the door in their face. But for some reason, when the price of shares fall, people don’t see it in the same way.
While it’s okay to go through a range of emotional states – normal, even – it’s not the time to make big decisions when you’re feeling down or anxious. You can sit at home and panic, but don’t pick up the phone and sell everything – that is, don’t volunteer to sell your shares at half price.
Another thing to note is that nobody has it easy. But sometimes we have to do things in spite of pain. If you see someone getting fit, or losing weight, it’s not because it’s easy for them – it’s because they have gone through the pain to get to where they want to be.
So you’re free to feel – but try not to act. And as we always say in financial planning, the three most useful words you’ll ever hear are: do not panic!