- Four-plus months of market declines and dour media headlines are taking their toll on investor stamina.
- Some folks are simply worn out, ready to raise the white flag.
- Now is the time for investors to fight fatigue and remain focused not on alleviating short-term pain, but on increasing the odds of achieving long-term goals.
- The market rewards those who remain disciplined during times of panic.
Excruciating. It's commonly defined as "unbearably distressing, extremely painful," and "intense suffering." Anyone who's completed an Ironman-distance triathlon will readily attest to these descriptions. And many would agree the market's behavior since last October also qualifies as excruciating—as a result, investor fatigue abounds. While the market reacted favorably Tuesday to the Fed's big rate cut, most investors still feel like they're 6 interminable hours into a 10-hour Ironman race, ready to hail the SAG wagon back to the hotel.
But as agonizing as markets feel recently, history shows us tough market environments reward investors with the discipline and mental wherewithal to make the right decisions despite temptation to quit the race. Finishing the Hawaii Ironman takes training, a solid plan and the discipline to stick it out through the pain and trying times. Experienced triathletes will tell you they relish adverse conditions that test their mettle and highlight their strengths, as it makes them better at what they do. Surely there are times when a triathlete thinks it would feel good to just stop, exit the race and lie down. No matter the mental fatigue, somehow they remember doing what feels good at the time means not finishing the race—and to a triathlete, that's real pain. Investors with long time horizons should view their journey no differently.
No doubt these are trying times for investors. We haven't seen market activity like this in ten years—when markets corrected 20% in 1998. (It's easy to forget the pain of past events—humans naturally evolved that way—otherwise marathoners would never attempt a second race.) And now, as this correction grinds on, investors are starting to huff and puff in pain and fear. Investors hear about discipline ad nauseam, but when tested—really tested like in today's environment—it's tempting to throw discipline out the window. Widely preached market adages like: "Be fearful when others are greedy and greedy when others are fearful," sound woefully feeble if you're convinced your heart, legs, and weary psyche can't take another volatile day.
If you're among those feeling too fatigued to go on, all we can say is don't give up! You've come this far and shown this much fortitude—it'd be a shame to fall prey to fatigue now. Remind yourself of this simple truth: It's really best to be greedy when others are fearful, and almost never is it wise to follow the herd, no matter how cozy you think the herd looks resting their tired feet.
It's easy to understand why some investors are throwing in the towel—they're only doing what their regret-shunning, pride-accumulating brain is hard-wired to do—avoid excruciating pain in the near-term. Behavioral studies show folks will go to extremes to avoid pain and loss. Many investors were fearful and fatigued in 1998 when stocks dropped on fears of junky debt, weak currencies, and failing Financials (sound familiar?). Back then, newspaper headlines also warned we were heading into an irreversible global meltdown. Staying invested through all those fears and choppiness didn't feel good—it felt horrendous! Investors who did were rewarded with a 23% return for the year on global stocks. Abandoning the market may very well make an investor feel better today, but disciplined investing isn't about feeling good today—it's about recognizing and following the most appropriate strategy to increase the likelihood of getting to your long-term goals.
We know times are agonizing today, but today's agony isn't particularly unique. We've been through these periods before. Exiting a market permeated by fear may feel better in the short-term, but it isn't conducive to reaching long-term goals—and most folks are investing for the long-term. Be an Ironman—stay disciplined.