30 September 2008
If I could summarize the one phrase I have heard most often in the past two weeks, it would be “It’s different this time.” That also happens to be the phrase I heard most during the tech bubble, as well as other times in the 1990’s when problems like the implosion of Long Term Capital Management arose. There are aspects of every financial downturn that are different, and many that are the same. But what is different this time is it feels worse because it hits closer to home.
In every economic downturn worry and fear creep into our minds because there is the unknown of how long this might last, and will it affect you personally. I think it was easy in the tech bubble crash (2000-2002) to distance ourselves from what was happening because it was a bunch of companies who did not make anything, did not have any cash flow and were over there in California that were going under. Today, the companies going under had strong balance sheets the week before, hold our cash and the mortgage on our home, and it might affect a family member who lives down the street. It has turned the notion of conservative banking on its head.
But feeling this fear and living it are two different things. In markets like this, discipline is the key. If you have a long-term strategy for your portfolio where there is enough cash and bonds to protect your income needs for the next few years, waiting this out will give you the upper hand. Only those panicking and selling into this decline will be hurt in the long run.
The last two weeks I have turned on the business stations before coming into work and found my pulse rising. Then I would change to a sports station and my pulse would go down. My best advice if you feel agitated like this is to turn it off. There is nothing you can do by listening more to the talking heads. And keep in mind, many of the talkingüheads have a reason to be talking – from actually paying for the time they are getting on a television or radio station to trying to sell more commercials (yes, turn off Cramer). Stay in touch with your advisor and verify that your five or ten year strategy is still in place and then grab a good book and get lost in your couch in front of a warm fire on these cool October nights. After all, it is your advisor’s job to do the worrying for you.
In the end I am a firm believer that we feel what we want to feel. Sometimes this means we need to control the information we listen to which inherently means controlling our own behavior. It is not always easy, but it will give you a sense of calm and control.