Crisis Events

Jun 24, 2016 2:59:00 PM / by Jonathan Blau


Brexit, US Elections, Isis? Which poses the greatest threat to investor portfolios?

ANSWER: None of the above!  The greatest threat is not currently on the minds of most investors.  It is in their minds.

Throughout hundreds of years of history such timely threats as those mentioned in this email’s subject line have been empty ones.  Acting on idle threats by altering long term portfolio strategies often causes irreversible – even fatal — damage to long term wealth.

There is one timeless threat that, left unaddressed, has consistently, repeatedly and predictably done permanent damage to investor portfolios.  The true threat is the one we pose to ourselves by reacting to current events and making poor money decisions under conditions of uncertainty.

In 1949, Benjamin Graham, legendary value investor and mentor to Warren Buffet, wrote in his classic book The Intelligent Investor, “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

The key discipline needed to increase the odds of long term investor success is the ability to  resist succumbing to pessimism and greed.  Investors tend to abandon plans based on mindless blissed out “new era” euphoria and greed as evidenced by their rush into technology stocks in the late ’90s and to flip real estate in the mid 2000s. Invariably, the bliss is followed by abject hatred and terror as evidenced by the mass flight to cash in the aftermath of the tech bubble and 9/11 attacks and again during the credit crisis of 2008-2009.

The advice to avoid this timeless threat – counterproductive investor behavior — at all costs, is likely to yield long term benefits that will surpass the benefits of most other advice, by a wide margin.

Unfortunately, while most investors want and need good advice, they tend to be attracted instead to  advice that sounds good.  Too many advisors offer “good sounding” advice rather than “good” advice as it is the path of least resistance to keep their clients happy in the short run.  Delivering good advice most often requires an advisor to be able and willing to stand against the crowd and go against conventional wisdom.

Just since the turn of the century, the following timely threats that investors feared would derail the markets, the economy and, in some cases,  life on Earth as we know it, are illustrative: Y2K, 9/11, The SARS quarantine (hundreds of millions of Chinese people appearing each night on the news wearing surgical masks), the debt ceiling crisis, the government shut down, anticipated permanent negative impact on stocks when baby boomers retired, the fiscal cliff, unprecedented downgrade of US credit rating from AAA, the implosion of the Eurozone (part one), Ebola, ISIS. The threat that led to the latest and one of the deepest economic and market downturns was none of the “known unknowns” mentioned above.  It was the American single family home that caused one of the worst credit crises in modern history.

It is investor reaction to these threats, not the threats themselves, that causes long term portfolio damage.  Twas ever thus and always thus will be. The simple question that investors must ask and answer: Is your financial planning going to be based on the realities of your life – anticipated retirement age, objectives and dreams – or will it be based on an apocalyptic speculation.  Making investment policy based on current events and reacting to crisis events is a losing investment strategy.

Using our PsyFi® approach, we combine our knowledge of traditional investment principles with our  broad and deep understanding of investor Psychology, aiming to help our investors to achieve better Financial outcomes.

The information in this email is based on data from what we believe to be reliable sources. It is not guaranteed for timeliness or accuracy.  It should also not be construed as advice meeting the particular investment needs of any investor.  This e-mail may link to or reference third party information.  Fusion Family Wealth has no control over such third party information, is not responsible for its availability and does not endorse and is not responsible or liable for any content, advertising, products and other materials on or available via such third party links/references.

All references that might be made to an investment’s or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future. Past performance is not indicative of future results.

Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this e-mail  is to be construed as a solicitation to buy or sell a security or the provision of personalized financial planning, investment, tax or legal advice. It is provided for informational purposes only.   Advice can only be rendered within the context of an executed investment advisory and/or financial planning contract between the client and the advisor.

Tags: Latest Insights

Written by Jonathan Blau