Let’s take an inventory of what has happened in the last few short weeks. A flu-like virus sent China into lockdown. It spread to the Middle East and Europe and then to our own shores. People died. Domestic and international markets whipsawed back and forth on a not-so-gradual decline that sent us into bear market territory for the first time in more than a decade. Conflicting information incited panic that drove us to clear grocery store shelves of basic necessities and deplete stocks of gloves, face masks and other medical supplies. The Federal Reserve instituted two emergency rate cuts, driving interest rates back down near 0%. School has been canceled or converted to virtual learning for millions of students and teachers. Companies are struggling to implement work-from-home policies and find new ways to serve consumers who are largely staying home. Sporting events, conferences, primary elections, travel plans and other social gatherings have been canceled. The IRS pushed back the tax payment (not filing) deadline to July 15th. The government declared a national state of emergency. Congress and the President are scrambling for ways to prop up an economy that isn’t meant to function during prolonged isolation. Millions of people are looking for ways to keep their personal or business finances afloat.
This isn’t new information but let’s just take a moment to acknowledge how much we have endured in a month. Even if we find ourselves in the category of lucky people, whose health is still intact and whose finances aren’t entirely dependent on a social economy, we have experienced nothing short of major stress these past few weeks. It’s not hyperbole to say that our ability to preserve the very things upon which life depends – health, money and food – has become more tenuous than at any point in the recent past.
It’s nearly impossible not to feel strongly when so many impactful events are occurring in such a short time. Unless you are intentionally disconnected from your phone, tablet, computer and television there’s almost no escaping these feelings. Every time we dare read an email, open a web browser or turn on the news, we hear one piece of bad news after the next.
Needless to say, we don’t like so much stimulation. Our internal system craves stability, calm and predictability. To find peace amongst all the content and amidst all the emotion, we try to answer two questions: What does this mean and what do I do about it? It’s hard-wired in our brain to answer these questions and the faster the better. What am I dealing with? A saber-toothed tiger. What do I do? Run.
We know what to do in many crises. As soon as we identify it, we do something. If I’m on fire, I stop, drop and roll. If there’s a tornado, I go to the basement in a room with no windows. If there’s an emergency, I call 911. Whether it’s fight or flight when something big happens our natural, instinctual next step is to take action.
It’s not that simple right now. With such little certainty in the equation, coming to an accurate answer about what to do in response is tough. If we knew how long it would be before social distancing was no longer necessary, it would be easier to make decisions about what stop-gap measures we needed to take. If we knew how the supply chain was going to be impacted, we could decide what provisions to stock up on. If we knew what a 20,000-point Dow really meant, it would be easy to decide whether to get into or out of the market. We could assess the situation and act accordingly.
Of course, the urge to respond doesn’t go away just because we don’t know what to do. In a moment when many of our traditional coping mechanisms like entertainment and social interaction have been taken away, we are even more desperate for a release valve for our stress. We feel the need to exert control in this highly uncertain time.
That makes this a very vulnerable time to be an investor because the actions we would take to soothe our fears about the market are the things that will ultimately cause us the most long-term damage. It very well might feel like taking our money out of the market is the appropriate response to this crisis. Unlike so many other things right now, being in or out of the market is one choice we do have control over. In a chaotic time, taking a known loss may sound more appealing than continued uncertainty.
In this uncertainty, we have a choice. We can tell ourselves we know what current events mean for certain. We can tell ourselves we’ve come up with a way to infer what’s to come from what’s happening now. We can do what feels good in the moment and act on that ‘knowledge’. Or we can do the more difficult, less immediately satisfying thing which is to tolerate uncertainty and resist overreaction. We can stick with a disciplined investment portfolio that capitalizes on opportunities created from the overreaction of others.
It feels like doing nothing. It feels like ignoring our instincts. Sometimes it just plain feels bad which is why everyone doesn’t do it. Long-term investors will face a never-ending series of short-term uncertainty not unlike what we’re going through now. It’s what we do – or don’t do - in response to that uncertainty that will ultimately determine what our future holds.
As originally published on Forbes.com on 3/19/2020.
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