When Markets Fall, Who do you Listen to?

Daniel Hawley |

When markets fall, who do you listen to? This may seem like an odd title for a blog post, but it is an important one from a psychological, health and financial well being standpoint. When markets fall and the economy experiences a down turn, the mainstream media highlights worst case scenarios and how bad everything can get. It can make your stomach churn if you have money in the markets, even if you have gone through such events in the past. The media is highly trained on how to illicit response with headlines that make you want to read them. That is how they make their money. It is also built into human psychology that any danger signals trigger the pre-historic or primordial functions of the brain that are about survival. Add a terrible war in Ukraine and ongoing economic cold-war with China and you have a recipe for doom and gloom.

Reading the daily media headlines can be bad for your health. As Baron Rothchild once said "Buy when there is blood in the streets". That is of course much harder to do for the very reasons we are just referencing. Our brains and bodies are trained to "flee" danger, and not walk into it for good reason!

Who do you listen to or turn to when markets are falling is an important question. When you have a professional seasoned financial advisor, you have an objective party to speak with who can share their perspectives about bear and bull markets over decades of experience. When you are in the midst of a bear market, it seems like it will never end. Likewise when you are in a bull market it seems like it will never end. Both statements are false however. No Bull or Bear market is permanent.

Our psychological patterning and deep rooted pre-historic brain however has a hard time being objective about this which is precisely why it is so hard to buy as Baron Rothchild recommended "when there is blood in the streets".

Investing is hard work. It requires one to often go against one's human nature or simply exercize patience providing one's portfolio is well diversified and optimized for risk-mitigation according to one's age and needs.

While we are currently in a very pessimistic market which will remain so until sentiment shifts there are good stocks or funds that continue to implement their business models while at significantly lower valuations. When sentiment does shift, these businesses will likely start to be valued differently. Has their business model changed? Perhaps, but likely not. Sentiment which is in large part dictated by the Federal Reserve and general market conditions will eventually shift. One never quite knows when but one can be attentive to the signals that the markets give us.

It is important to look at the hard data emerging in the news. Yes, real estates markets are cooling quicky. Mortgage applications have fallen to a 22 year low. The 10 year Treasury continues to stabilize around it's recent highs. The economy is cooling which was the Federal Reserve's intent as we have discussed in other blog posts. Inflation continues to be a boogeyman. Not so broadly communicated, China called all its regional party representatives to the table to discuss how to get their economy back on track. They are starting to emerge from lockdown and it is clear that the "economic needs" are now weighing more heavily on the leadership and their hard line COVID policy is easing. That is potentially good news for getting supply chain issues back on track. It will of course take time to do so but it is near impossible to make progress with this when people are on strict lockdowns in key markets.

Inflation will also take time to ease. It is important however to note that markets are "forward looking", so market sentiment will shift before the data shifts meaningfully. We can look for indicators such as the trend in inflation numbers, the Federal Reserve easing their rhetoric about hiking rates, company earnings and so forth. Any shift from a bearish to a more bullish sentiment will take time and happen in fits and spurts as the economy and markets climb a wall of worry. There may be more setbacks and markets can always fall further. All of these scenarios are possibilities. If you have a seasoned financial advisor you will be able to have informed conversations that give you a more objective historic perspective. That can be a welcome opportunity when markets are turbulent to the downside.

Who you listen to matters! It can make a significant difference to have a seasoned financial advisor on your side. For a complimentary portfolio riskalyze analysis please contact our office. We look forward to meeting you.