What. A. Month.
April was wild for the US stock market.
If you entered a time warp on April 1st and came back to reality the evening of the last day of April, you’d notice that the stock market was off only a little: nearly flat for the Nasdaq and off about one percent for the S&P 500.
You may not think anything significant happened in the world, the White House, or Wall Street.
On the other hand, if you were glued to the news and your trading software during the month, you would have had to try to cope with a 10%+ loss at its worst and constant news updates about tariffs.
· What did you do in your investment portfolio at its worst?
· What did you feel like doing?
Remember that feeling (or that action), as those days can happen again—be it sooner or later.
Howard Marks, in an interview in 2018 at UCLA Anderson, discusses how important it is for investors to be introspective especially in their ability to tolerate market fluctuations.
...every person should perform serious introspection and figure out where they should be. And the emotional content is extremely important because the one thing you can't do in investing is: you can't do the right thing if you can't stand the pain. And everything that happens emotionally conspires to make us make mistakes.
Most people get excited the better things go. They feel better about stocks the higher the prices. They tend to buy more when the prices are at high levels, and then when it turns down, they get depressed and they get sad and they rue the day they ever bought a stock, and they tend to sell at low prices. That's what most people do.
How can we tell that's what most people do? Because stocks go up and when they get too high then they come down, and most people are buying up here, that's what puts them up here, and they are selling down here, that's what puts them down here. So, emotion works to our destruction.
If you can't [handle your emotions with investing], there are things you can do, you can turn your money over to other people to manage…there are ways to put your investing on autopilot…1
Pair Mr. Marks’ advice with what we just experienced in April to evaluate your tolerance for speedy market declines because the thing that works to an investor’s destruction is their emotions.
Do it now during a bit of a bounce back off the lows. If you do not do it while things are fresh, you will forget until the next negative market event comes along.
Making big investment decisions in the middle of a significant decline and heightened emotional distress can be the worst time to do so.
The impact of emotions on a portfolio sometimes may be more dangerous than tariff threats or future fill-in-the-blank negative news headline.
If you or someone you know needs help managing money and managing risk, reach out to us.
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Source:
1 Oaktree Capital’s YouTube Channel. “Howard Marks: UCLA Anderson Fink Center ‘Mastering the Market Cycle’” beginning at the 25:49 minute mark. Accessed online: https://youtu.be/-eQ5jtNsc4A?si=8LrowCDZOEU4evM2.