Hey everyone, Derek Merkler here with another tip of the week. I want to take some time in this video to discuss my personal technique for overcoming the emotions, especially fear, that are caused by wild swings in the stock markets. There are two primary fears. Fear of loss AND fear of missing out, both which cause people to act irrationally.
We’ve seen some significant ups and downs in U.S. and world stock markets lately. In early 2018, we reached record highs followed by a swift decline in the spring. Then we reached new highs in September and October of 2018 followed by a slow decline changing to a freefall in December… and then a powerful rebound into the middle of 2019. Mostly… kind of.
Major U.S. stock indices are at all-time highs as I record this video. But that’s not true across all stocks. For example, stocks of small U.S. companies have negative price returns from a year ago. Certain market sectors have had limited recoveries as well. Same with international stocks.
I highlight this not to obscure anything, but to demonstrate that individual investments often move in different directions for many different reasons at different times. And this reality leads to the temptation to sell asset classes that are doing poorly and purchase the ones that are doing well. Some people have success with that technique, most don’t. So the alternative is generally buy and hold. Which means we have to hold on tight during the entire roller coaster ride.
One technique to overcome the fear of stock investing is to not look at your account values… or don’t read news from the financial media.
That doesn’t work for me, though. Now, most people think of stocks abstractly; that they’re an electronic entry in their online account and that hopefully, someone in the future will be willing to pay more for them. I prefer to view stocks more tangibly. In the past, this was a bit easier due to physical stock certificates.
Even more tangible than that, though, is that I acknowledge that I am a part owner in a real company, with real employees, and real buildings, and real factories, and real products, that real people buy. And while the stock price may fluctuate by the millisecond, does the economic value of the company really change that fast? Because a quarterly earnings report was 5% lower than expected, did the real value of the company fall by 20%? Or 30%? No, of course not.
Therefore, short-term moves in stock prices are essentially irrelevant. Even in a bear market. And in a bull market, for that matter.
As a tangible reminder for me, I keep this stock certificate on hand. This one, in particular, is an American Express stock certificate for two shares that was issued in 1864. The neat thing about this certificate is that was signed by the founders of American Express, Henry Wells and William Fargo. The original purchaser of these shares did not hold them for long, unfortunately. Holding them until today would have required waiting through the end of the Civil War, multiple world wars, the cold war, and many recessions and financial crises.
Unfortunately, there’s no public data to determine what these shares would be worth today. But I use this certificate, once again, as a reminder that the stocks that I own represent ownership in real companies with real employees making real products and services who are purchased by real customers. And there are few better places to be invested over the long haul.
For me, that knowledge helps deal with these wild swings and variations in prices.
Do you have a different technique? Please comment and let me know! And if you are a veteran and you want to work with me to develop and implement your financial plan, send me a message!
Thanks for watching!
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Remember, the topics discussed in this video are for informational purposes only and that past results do not guarantee future performance. If you would like to discuss your financial situation, please email me at Derek.Merkler@Parsonex.com.
Advisory services offered through Parsonex Advisory Services, Inc., 8310 S.Valley Hwy, Suite 110, Englewood, CO 80112. 303-662-8700.