"It's fine to celebrate success but it is more important to heed the lessons of failure." - Bill Gates
Want to know why headlines are so terrifying? They are emotional. They are exciting. They are impactful. They declare a perception that things are much worse than actual reality.
I see this all the time with investors I work with or talk to. It is so easy to hear a big number and attach yourself to it. It is so easy to look at one stock that has lost half of its value and claim that your entire portfolio is ruined.
One of the best ways to ensure you are making educated decisions is to be emotionally aware. By taking emotion and bias out of the situation, you will see if your perception matches reality.
I had an investor who claimed to have lost 42% in her portfolio last year. Yet, when I looked at the positions, there was not a single position that lost what she had proclaimed. There was an account that was down $42k at one point, and perhaps that is the perception she made her reality. That same portfolio which got slammed during the back to back market corrections, at the end 2015 and beginning of 2016, is doing very well at this point, with modest returns thus far in 2016.
This is why we believe in a healthy asset allocation. Over a market cycle, we might not be hitting home runs, but we’re not losing 42% either. I have been told many times that, psychologically, the feeling of a loss is 3x more painful than the gratification of gain. I can attest to that. The perception of loss in the short term, requires delicate conversations with clients regarding the pain of a market correction and why it is a natural and normal part of a market cycle. Yet, a massive gain in the portfolio rarely gets more than a nod of approval. It proves that success comes from time in the market, not timing the market.
What’s your perception? Does it match reality? Engage Advisors, LLC is here to help. 913.681.9155.