The Digital Rock and Successful Investing Mentalities

Wooster Corthell |

To our clients and associates,

It' s amazing what a difference a year can make.

Two years ago, in 2021 we saw massive euphoria in the markets that hadn't been seen since the Tech Bubble in the early 2000s. I think the defining transaction of 2021 was a person's decision to spend $1.7 million on a digital picture of a rock, a rock that anyone with access to the internet can also see.

Fast forward to the end of 2022, and rampant speculation has been rung right out of the market as fear dominates headlines. Stocks had their worst year since 2008 and the Bloomberg Bond Market Index had its worst year since its inception in 1977. A nasty one-two punch for conservative investors. These selloffs occurred as investors contended with higher inflation and recessionary fears.

These are the times where investing gets tough, and these are the times where emotional decisions can make lasting negative impacts on portfolios and rational decisions have the potential to enable a next leg higher.

The hard part is handling the emotional swings we feel, and you feel, in watching your life savings in motion every day. There are three key things we suggest doing when dealing with market volatility:

  1. Acknowledge that markets can lose money and bad markets can feel lengthy at times:
    Understanding that this is part of the process is important as not expecting losses can cause panic at times when things become more difficult. Generally, investors who are unable to acknowledge these very real expectations of losses set themselves up for failure by looking for a quick turnaround only to be disappointed again. The average bear market lasts about a year, with the shortest being a month (Covid) and the longest being three years. The average bear market has a loss of around 30%.
  2. Distance yourself from Daily Headlines:
    We know that watching and reading the news along with frequent account logins can be associated with higher stress. Higher stress can lead to making unforced errors. We help our clients build wealth because we enjoy seeing them live their best possible financial lives and that is where your time is best spent.
  3. Review and Stick with your Plan:
    When clients are preparing for retirement, we meet to review their financial plans. These plans offer significant stress tests to deal with situations like what we are going through right now. As financial advisors we have little fashion sense and prefer belts and suspenders when building your plans.

We realize our advice requires a level of commitment to enduring troubled times and that is not easy, yet we continue to ask it of you anyways. The reason we give this advice is it’s grounded in the facts of successfully participating in the markets.

DALBAR studies the performance of the average equity investor and compares that performance to that of the stock market. Over 30 years ended 2016, they found that the average equity investor earned nearly 4% per year while the S&P 500 earned 10% per year! The reasons? Money flows into equities after gains and flows out after losses, trading costs and fees. The activity and the temptation to do something is the very thing that hurt most investors on average.

This may be why Charlie Munger said, "The big money is not in the buying and the selling, but in the waiting." Or as his business partner Warren Buffett said, "The stock market is a device for transferring money from the impatient to the patient."

We thank you for your continued trust and if you have questions or concerns about the markets or your financial plan, please feel free to contact us.

PS: if you are interested in the digital rock, it is now selling for 85% off!


Matt Corthell

Past performance is not indicative of future performance. Loss of principal and/or loss of portfolio value are possible.