Personal Note: At a time when people in Ukraine are fighting for their lives and a mad man has made threats to use nuclear weapons, I find it difficult to think or write about anything else. I suspect the same is true for you.
This is a treacherous time to be an investor. A complicated, complex, and interrelated collision of powerful forces have produced extreme turbulence in global politics, global economies, and global markets. Turbulence is dangerous. It is not likely to go away for some time.
I don’t have the answers to the questions we all want answered but I want to give you a few thoughts that have helped me when making investment decisions in times of extreme turbulence.
Think Like an Old Guy
The hardest thing for an investor to do in a crisis is to control yourself. It is also the most important thing.
How do you do that? Put on your old guy hat. As far as I can tell—and I am an expert—there are only three benefits to being old. One is that you wake up every two hours during the night anyway so checking futures prices all night doesn’t cost you any sleep. (Whoever thought futures markets open 23 hours a day was a good idea should be shot.) The second is that you have been through so many crises that you have used up all of your adrenaline so you no longer get excited about big swings in prices in either direction. The third is you know that if you lose all of your capital now you don’t have enough years left to earn it back again. That makes you very careful.
For better or worse, I am already wearing my old guy hat. I have been through every global economic and political crisis for the past 50 years. I have made money and lost money in every possible way. And I have taught graduate courses in behavioral finance. All have made me a better investor this time around because I don’t get (as) excited as I once did when bad things happen and I only take baby steps with the portfolio. Here is what I know about investing in a crisis:
Crises trigger strong emotions.
People experiencing strong emotions people make bad investment decisions.
When entire markets are in the grip of emotions, investors’ mistakes are compounded as people overreact both to each bit of information. The resulting price changes convince others to make the same mistakes, which erode the value of collateral and trigger margin calls and debt defaults.
So, do your important thinking and map out your portfolio strategy away from the screen when the market is closed. Stay away from Twitter during the day.
Summary: Never hit the buy or sell button out of fear.
Once you get really good at not getting excited, you can actually take advantage of other people’s emotions by slowly and selectively buying shares in great companies that are being temporarily and unfairly punished by real or imagined bits of news.
To do this you have to really know those great companies well and have your own firm view of what they are worth so you can tell the difference between the companies Warren Buffett has called wounded eagles and the ones he calls wounded ducks. If you can’t spare the time to do this you should turn off the screen, put your money in an index fund, and take your dog for a walk.
None of us are as smart as we think we are.
I would love to hear from you about what are the questions that are keeping you awake at night. I will give you my thoughts and submit them to our extraordinary group of subscribers for their comments.
https://www.ft.com/content/0c9e3b72-8d8d-4129-afb5-655571a01025...we're not the only ones looking at the end of globalization so...net results?? slower overall world growth; shifting alliances and supply chains; more volatility in energy costs/prices; end of disinflation after 4 decades; more $$ wasted on military buildups and risks - less on climate chaos management; higher risk/reward ratios for all risk investment?? etc....aiii!
From one "old guy" to another: Nicely put doc. As Devil's Advocate However....Growing up as a "young guy" who learned how to hide under a desk in grade school, I will admit that my fear of loose nukes is back at an all time high. Further, similar to our brief discussion (informed by a shared foreign affairs article) couple years ago regarding whether the post WWII order would ever recover from Trump damage (all three of us pretty much agreed - NOT) I feel a permanent global hangover from in the making irrespective of non-predictable Russia - Ukraine outcomes. For the first time in over forty years I feel less sanguine about foreign investing with variety of odd spinoffs; E.g. how safe should we feel about INTC investing $20b in chip manufacturing in Germany - I'd buy this value-ish stock in a heartbeat if that facility were to be in the U.S. ... so much for globalization?? thoughts? Best from Chapel Hill (and hey , we have an unexpected shot in the sweet sixteen!) Happy spring.
Good to hear from you Rick. I remember crawling under our desks too. I am worried too. My fifth grader tells me the kids are watching the war in Ukraine real time on Tik-Tok and they are worried about World War III. I also remember in the '80s when whether you could drive a tank there from East Germany was a factor when making investment decisions. Tribalism, not globalism, will be the driving force now, which makes investing much more difficult than it was during four decades of falling interest rates. COVID is not over. Supply chains are not going to heal overnight. Inflation and interest rates are going up, not down. The US and China are decoupling. And we have to survive Mr. Putin apparent mental decline. My main goal as an investor is to protect capital so we get to the other side this with the capital largely intact. That means it's OK to hold too much cash, avoid leverage, shorten duration, shun high-growth (high-duration) bets, collect dividends and buybacks, and keep your capital close to home. JR
https://www.ft.com/content/0c9e3b72-8d8d-4129-afb5-655571a01025...we're not the only ones looking at the end of globalization so...net results?? slower overall world growth; shifting alliances and supply chains; more volatility in energy costs/prices; end of disinflation after 4 decades; more $$ wasted on military buildups and risks - less on climate chaos management; higher risk/reward ratios for all risk investment?? etc....aiii!
From one "old guy" to another: Nicely put doc. As Devil's Advocate However....Growing up as a "young guy" who learned how to hide under a desk in grade school, I will admit that my fear of loose nukes is back at an all time high. Further, similar to our brief discussion (informed by a shared foreign affairs article) couple years ago regarding whether the post WWII order would ever recover from Trump damage (all three of us pretty much agreed - NOT) I feel a permanent global hangover from in the making irrespective of non-predictable Russia - Ukraine outcomes. For the first time in over forty years I feel less sanguine about foreign investing with variety of odd spinoffs; E.g. how safe should we feel about INTC investing $20b in chip manufacturing in Germany - I'd buy this value-ish stock in a heartbeat if that facility were to be in the U.S. ... so much for globalization?? thoughts? Best from Chapel Hill (and hey , we have an unexpected shot in the sweet sixteen!) Happy spring.
Good to hear from you Rick. I remember crawling under our desks too. I am worried too. My fifth grader tells me the kids are watching the war in Ukraine real time on Tik-Tok and they are worried about World War III. I also remember in the '80s when whether you could drive a tank there from East Germany was a factor when making investment decisions. Tribalism, not globalism, will be the driving force now, which makes investing much more difficult than it was during four decades of falling interest rates. COVID is not over. Supply chains are not going to heal overnight. Inflation and interest rates are going up, not down. The US and China are decoupling. And we have to survive Mr. Putin apparent mental decline. My main goal as an investor is to protect capital so we get to the other side this with the capital largely intact. That means it's OK to hold too much cash, avoid leverage, shorten duration, shun high-growth (high-duration) bets, collect dividends and buybacks, and keep your capital close to home. JR