The Power of Dispassion: Trusting the Markets’ Cycles

06/11/2019 - Uncategorized
The Power of Dispassion: Trusting the Markets’ Cycles

Nothing is more challenging for a wealth manager who works with her clients’ best interests at heart than talking them off the ledge when the market is tanking.

        When you’ve been doing this as long as I have, you get to a point where, frankly, you’re somewhat bemused to find that investors panic at all. Does that make me sound jaded? I hope not; “experienced” has a much nicer ring!

        Still, I get it. I really do.

        Here you are, having worked for and planned for and saved for the retirement of your dreams—and now that you’re closing in on it (or already in it) it’s like every zoo in America decided its bears could use a walking (or worse, running) tour of Wall Street! What response but panic is appropriate?

        Well, education.

        Because once you understand the market’s cycles, you realize that even the darkest day on Wall Street, in the bigger scheme of things, is fleeting. So are long-term bear markets. When you combine an understanding of the market’s cycles with years of experience in managing portfolios through them, you know panic isn’t just pointless, it’s unnecessary. You’ve already planned in a way that can accommodate tough markets and can even leverage them to a client’s advantage.

        Still, when any day is especially dark, I get phone calls. Take 2011, for example.

        I was at a remote location in India where you can’t really get the internet. But when we went into the city I hit up my smartphone and saw that the equity markets were in a tailspin: A key rating agency had downgraded U.S. Treasury bonds from AAA to AA, thanks to a Congressional harangue in Washington. The news media drew up worst-case scenarios, including people going without their social security checks.

        I pictured the phones lighting up back in Boston—where, fortunately, it was the middle of the night; the trading day had not yet begun. I sent my staff this e-mail:

        “When people call, tell them not to sell their equity positions, this is craziness. Downgrade of Treasuries should affect the Treasury market, not the stock market.”

        That’s because when a bond is downgraded, the issuer must usually pay more in interest to attract buyers. In short, this “crisis” was no crisis at all. If anything, it was an opportunity to buy in to equities—not sell out of them.

        Thanks to an understanding of market cycles born out by years of actually seeing how events in one market impact other markets, I was able to abide by an axiom that is often heard but too infrequently applied: Buy low.

        That axiom’s other half, of course, is “sell high”—and sending a sell order on a bad day for the market is doing quite the opposite.

        I discuss market cycles in great detail—and share what I was up to in a remote corner of India—in my book, You’re Retired… Now What? – coming soon!. I hope you’ll read it.



This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity.

This blog does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. It is important to review investment objectives, risk tolerance, liquidity needs, tax consequences and any other considerations before choosing an investment style or manager.

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