Enjoy the ride

Can you believe it’s been a decade since the 2008 financial crisis? If you follow the markets, you’ll know the FTSE100 tumbled again recently.

It might feel like a bit of a roller coaster ride, but don’t worry. As we always say, there’s no need to monitor the markets, just wait it out and it will be OK in the long run.

To prove the point, this article revisits what we’ve learned in the last ten years, as well as some more recent reminders.

In 2009, Charlie Munger of Warren Buffett’s company, Berkshire Hathaway, was questioned on the BBC. About 45-seconds into this 11-minute video, he comments: “If you are not willing to react with equanimity to a market price decline of 50% two or three times a century, you are not fit to be a common shareholder and you deserve the mediocre result you are going to get”.

He’s implying that stock markets rise and fall, and that you have to go with the ride. However, you might be tempted not to – many people naturally panic and sell when markets are low.

In this article by Kim Snider on Equities.com, you can read the story of one investor who couldn’t take the pressure and sold at the bottom, despite advice from his investment manager. As you can see on this graph, it was financial suicide.

Happily, that wasn’t one of our clients.

We went to the recent Humans Under Management conference. It’s a popular event that we pay to attend every year. You might think a conference about pensions and investments is dull. But we don’t talk about dry numbers. It’s all good stuff about human psychology.

We took this photo of one of the key slides which shows how US investors behaved in 2008:

Supposedly, active management is the be-all and end-all – but they sold out while Index Funds (such as the ones we promote here at Plan 100) saw money coming in.

Here are some of the other key takeaways from the event:

  • Investor behaviour is irrational. For more on this subject, you might like to read the book Fooled by Randomness: The hidden Role of Chance in Life and in the Markets. In a nutshell, it explores how we tend to give ourselves credit when things go right, when really it’s just a random event
  • People confuse volatility with loss. When funds go down, it looks like a paper loss, but actually, it’s just the volatility of the fund. Nobody’s actually made a loss unless they sell at the bottom of the market
  • Falling markets aren’t necessarily a bad thing. When the market falls you’re able to buy low so you can sell high later

In summary, you just have to hold on and enjoy the ride! We hope you find this information reassuring. If you have any questions, of course we’re always here to help.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100