On Monday February 24th 2020 the Dow dropped over 1000 points in a single day.
Human behavior is driven two forces, fight or flight. When facing a dramatic event we as individuals are forced to REACT to what happens.
When looking at the market, if a person is underinvested and it goes up day after day making new highs, that person may experience FOMO… fear of missing out. They might make the decision to invest based on emotion instead of fundamentals.
By the same token, if a person is invested and the market goes down rapidly as it did this past week, fear can grab hold and motivate people to hit the sell button. If the drop halts and the market returns to its upward course, investors could again miss out on future gains.
I recently heard an investment officer say, it’s critical for investors to start with a plan and make periodic tweaks to stay on target, instead of reacting to news items and making decisions based on emotion instead of logic.
It is crucial to meet long term financial goals, that individuals work with trusted financial professionals that can provide guidance and insights. Such financial professionals are compensated to look deeper into the current situation that an individual investor is not able, or is unwilling, to follow. Markets are affected by millions of pieces of data and thousands of trends. Many times some of these pieces of data and trends run counter to each other. This creates confusion.
Overcoming this confusion requires patience and communication.
Patience is key because it’s important to not assign disproportionate value to an event or trend or piece of data that in the end is meaningless. Patience is key to assemble sufficient data to support a thesis and in the end make the proper decision.
Communication is the key to help individual investors not self sabotage themselves. By understanding what is happening and having a long term plan, individuals can stay focused on the long term.
Markets by their very nature are volatile. Understanding this and having a strategy to meet your long-term goals, can significantly improve your odds of success.
To learn more contact me at james.cox@FFGadvisors.com .
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