We’ve all made one. A moment that sticks with us. A decision that, looking back, shifted the course of things. It might have been turning down a job offer that ended up being someone else’s big break. Saying no to a chance to live abroad. Or staying silent when you should have spoken up.
Some mistakes come from taking action. Others from not acting at all. But both can shape our lives in lasting ways.
In this piece, Steve Rowe explores how this idea applies to investing, where the urge to “do something” in turbulent times can often lead to poorer outcomes. Through personal stories, sharp observations and a pinch of humour, he reflects on how resisting the impulse to react can be the wisest move of all.
The Big Mistake
Ever made one of those? I’m sure you’ll remember it. A life changing decision that you made, for example:
- Turning down that job offer and seeing those that did be super successful.
- Turning down the offer of a move abroad.
- Not kissing the girl/ boy you should have…
Not me the last one! I got me a good woman (bit of insurance there in case she reads this!)
They come in two types:
- Actions you take
- Actions you do not take
When and how to act determines so much in life and whether you will be ‘successful’ at it or not.
As a boy, I would sit in bed with my torch on looking at ‘The world of archaeology’ book I had. It was the early 1980s and Indiana Jones was out and I loved it! I was probably about 6 years old, wore my brother’s leather jacket and pretended to be Indiana. I was also probably about 6ft tall by then, so looked the part and I wanted to go to uncharted places and discover ancient artefacts and gold! On the cover of the book was a picture of Machu Picchu, the Incan town in the Andes which had only been discovered 70 years earlier. Fast forward to 2001 and I was in a pub in London with a mate and his colleague. They were planning a trip to Machu Picchu and asked if I would join. But I was buying my first house and felt I couldn’t afford to go. I was about 23 and thought that was the sensible thing to do. I needed to buy a sofa! But… I really regret that. I think about it several times a year.
I’ve still not been there and when I do, I won’t be 23 and it won’t be as much fun will it? I’ll probably be knackered as I’m not as fit and a lot less likely to get involved in drinking competitions of fermented Alpaca milk with Peruvian Llama farmers. Or ‘how many Guinea pigs can you eat in 15 minutes’ contests. The poxy sofa always gave me neck ache too.
That’s a regret about ‘not taking action’.
But what about a mistake caused by taking action? Most of the time in life, doing something will help to alleviate the problems and make it better. The pipe is burst, so you turn the water off. Boom, flooding stops so you can fix it.
But with investing, if you do something, you are most likely to cause a lower return! Tis true, look up the work of Dalbar and see the stats – you’ll be amazed.
Last week, Trump, Vance and co gave you all the ingredients to make a dinner called ‘the big mis-steak and fail pie’
See what I did there?! Steak and ale… brilliant.
They devised a plan that has meant that markets have fallen really quite dramatically in the last week. With the MSCI World Index down about 8% in the week. Scary!
(but still up over 18% in the last 2 years… not so scary.. Quite nice actually)
They feel, that by charging more for imports, that companies will want to relocate back to USA, build more jobs for them there and improve their balance of trade, whilst getting a lot more income to the federal finances.
But like all plans made by doughnuts, there are holes in it. Inflation is likely to increase and less trade means less profits.
So what do you do? Markets have already fallen and may continue to do so but they never do forever. Do you get out now and make the Mis-steak and fail pie? Accept a loss you have already incurred, hope it doesn’t bounce back immediately afterwards and then try to get back ‘in’ at the right time? You’ve got to be right twice there. I’d say you’ve already been wrong once by not disinvesting in Mid -February when markets were at all-time highs. So why do you think you’re going to get it right twice in a row now?
Or, do you sit back and say:
“Hey, I’ve seen this all before. The ebb and flow of markets and the latest ‘crisis du jour’ so I think I’ll just sit back and do something more interesting instead”
Do nothing with your investments because EVERY TIME EVER, in a globally diversified investment portfolio, that this has happened before, the markets have recovered and gone on the reach all-time highs again. The longest period is 5 years 8 months but on average it’s about 3 years.
The market declines on average EVERY YEAR by 15% at some point and then comes back. This could be just another one of those.
The stock market will every 5 years or so decline by 30%+ and then regain and advance more
There are times when the loss will be really deep and stock markets could fall 50%. Again, it is only a matter of time before it recovers.
Whilst markets are lower priced, the dividends that we use to buy more shares with will buy lots more shares than they normally would, as they are cheaper! This rewards the brave and fearless like you.
Such losses are part of our plan… we know they are going to happen but we don’t know when. Has your life’s plans changed due to this? No. As such, your financial plan shouldn’t change either.
Such losses are part of our plan - without them you do not get higher overall returns.
If high inflation is caused, then company shares are the highest earning asset class against inflation. They are the best place to be. Dividends increase by more than inflation increases, generally.
Actions to take:
If you have more than enough money – do nothing with investments.
If you only have just about enough money, then consult with your financial planner before going on the proposed trip / making a large expense. Use cash savings first. It may be worthwhile delaying until there is some bounce back in values if you need to cash in shares to do this. But also, it may be that you won’t be able to spend money in future due to health or death, so this may be your last chance! We are here to listen and advise what’s best for you.
We have practiced this in our annual review meetings over the years and this is your time to shine! Head up the shops and get ingredients for a proper pie – here’s one
https://www.bbcgoodfood.com/recipes/steak-ale-pie
Miso paste? Interesting umami flavours. I go with mushroom ketchup myself. Finish the ale you don’t put in the pie filling, or get another bottle of it and some pork scratchings to enjoy as you go.
Anyway, get the ingredients. Rolling pastry is extremely therapeutic. This will take the ache of anxiety away. Then, as you have floury hands you will not be able to login to your portal. Do not look until I tell you again!
It does you harm.
Finally, mash some spuds or cook some chips, and make loads of gravy to enjoy your dinner! Satisfied, with a full belly, sink into a comfy seat and allow it’s soporific affects to wash over you and have a snooze. Nice!
Steve, we love your analogies but I am a vegan worry wart / statistics based personality and I need more. There is so much in the media I am getting panicky:
Wise men talk, because they have something to say, fools because they have to say something - Plato
Good old Plato… I’m not sure there was tabloid financial journalism or social media, You tube videos barking at him in 5th century Greece, but he could very well be talking about modern media today.
For those best with words:
By way of example, the MSCI World Index, if you invested on 1st January 2008 dropped by 19.5% that year. Remember that? The Credit Crunch? The world was ending and year, if you hung on and not sold by 31st December 2023 you had made an average yearly return of 9.4%. EVERY YEAR. Similarly in 1990 it fell by 30.1%. If you kept to millennium eve, then the average return was 11.7% EVERY YEAR. If you continued to hold it until 2010, only 6.6% a year and to 31st December 2023 – 8.2% every year.
You have a long term left to invest, here are scenarios:
- You’re in your 40’s – you will probably live until your mid 80s – that’s a long time
- You’re around 60 and just retiring – you’ll probably live to verging on 90 – that’s a long time
- You’re in your 80’s – agreed, you may not have a long term, but if it’s fallen in value, this means less inheritance tax and your inheritors do not have to sell out the investments. They can keep them until they rise again. Instil this message in them. If they need the money immediately upon your death, they probably need it now… so you should be giving it to them.
For those best with pictures:
We are here for you. If you’re struggling, reading too much investment news, worried about what will happen, then call us. We get it, it’s scary. But, what you are scared about is a million times more likely to happen if you make the wrong decision and do something.
Action you should take:
If you have money in cash accounts, the world’s greatest companies are on sale right now. They have been around for decades, consistently make profits and are highly unlikely to fail because of this. I myself have made a substantial investment today as things have become so cheap. I’ve reignited my Indiana Jones and gone on another adventure! Join me…
Disclaimer: This article does not constitute financial advice. We recommend that you speak to a qualified financial planner for advice tailored to your individual circumstances and goals. Financial markets may go up or down, and you are not guaranteed a return on your investment. Past performance is not necessarily a guide to future performance.
