How to Respond to Market Volatility

16th May 2022

Next step courage: Ability to not feel pressure of trying to complete the entire journey. It’s for a few seconds finding courage to overcome self-doubt before taking the next step. – Shane Parrish

Market Price Movements

Turbulence can be annoying. When it happens unexpectedly, even more so. The airline industry knows this well. There is a reason the pilot comes over the speaker to prepare passengers. It’s not that the pilots need the passenger’s help in navigating the bad weather. It is about managing expectations. It is about providing a better customer experience. Sometimes it works and sometimes it does not. Most likely the people that have felt it before do better than those experiencing it for the first time. The level of turbulence matters too.

Investing is unfortunately very similar. Market prices move around. They will never be consistently stable. This movement can be unsettling. However, there is one big difference. The investing world is filled with passengers (i.e. TV commentary, newspaper headlines, social media posts, etc.) all yelling at the top of their lungs that the plane is going to crash.

Envision you are back on that plane and instead of hearing the pilot calmly warn you about turbulence ahead, the cabin is filled with people panicking. Entirely different experience. This is what investors must deal with. At every level of the downturn, there is someone waiting to scream. Not exactly a fun ride.

Why Zebra’s Don’t Get Ulcers1

For sure, this is an interesting title for a book. Might even remind you of those children’s books like “If You Give a Pig a Pancake”. You can be assured not a similar genre 😊.

This book is applicable to investor psychology today. The book subtitle does a better job of explaining the contents, “The Acclaimed Guide to Stress, Stress-Related Diseases, and Coping”. Here are some insights:

  • Stress is heavily rooted in psychology once you factor in not being in immediate physical danger.
  • Level of wealth does not necessarily determine stress level. It is feeling poorer that brings stress. The difference between being poor versus feeling poor.
  • Activating stress response all the time has long-term effects. If the body is constantly fighting for survival, it will stop doing the daily maintenance required for long-term health.
  • The stress response system becomes generally shortsighted, inefficient, and penny wise and dollar foolish.

Path Forward

The turbulence sign has been turned on. For experienced investors, this market volatility is nothing new. It is not fun, but it is part of being an investor. If investing was always easy, the long-term returns would not be as high.

Investors can make it easier on themselves by remembering a few things. Initial stress is common. We are not zebras. However, we can choose to acknowledge the natural reasons for that stress. Through that process, we can learn to deal with it. Let’s save the high blood pressure for those rare events as opposed to using it daily to check investment account balances.

Lastly, we can hopefully do a better job with who we choose to sit next to on our “investment airplane”. Exposing yourself to panicked passengers who have different goals may not be ideal. Also, feel free to use your passenger “call button” and let us know how we can help.

Thanks for your continued trust as we continue to navigate the way forward.

1 Spolsky, R.M. (2004). Why Zebra’s Don’t Get Ulcers. Holt Paperbacks

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