Happy Fri-YAY, all! We hope that your May is off to a good start and you’re gearing up for a wonderful summer. Speaking of seasons, spring has finally sprung in Minnesota, but the financial markets haven’t followed suit. It’s been stormy…lots of April showers and no flowers to speak of yet. Let’s discuss.
We are keeping this intentionally brief today because it is an important time. For most of you, this is simply a refresher. For new readers, this might not even be relevant but for anyone that has caught a glance at recent market performance and spit out their coffee, this is for you.
Investing is fun and easy when markets just move higher. Or, even better, it allows us to tune out, tune into life and just let it do its thing. When things are rocky, it’s very easy to get caught up in the drama. It’s a rational thought to think that when things aren’t going as well as we would like, it may require increased attention because many things in life work that way. However, with investing, it works the opposite. When the dog barks or the baby cries, you just let it do its thing.
Stocks and bonds are both down year-to-date. There have only been a handful of times in their recorded history that this has been the case (lucky us). We’ve talked at nauseam as to why this is – pandemic into a period of “free money” into overheated valuations into the Fed getting burned by inflation and rates up, yada yada yada. None of that matters at this moment. What does matter is what we can control and that’s our behavior.
There’s a very large academic discipline known as “Behavioral Finance” which studies the effects of psychology on investors and markets. It’s fascinating stuff and fun to read. Nobel Prizes have been given to authors involved so it’s a big deal. But we can Cliff’s Note-it down to this: no matter the market in question or the historical time period, when people make financial decisions with emotions, it doesn’t end well. And to make things more difficult, people feel, on average, more pain from down markets than they feel joy from up markets (lucky us, again!).
We expect things to remain volatile for the foreseeable future. There will be continued drama with the Fed and inflation. There will certainly be reasons for a frowny face or maybe even the dreaded, thumbs-down emoji. Shrugging off these periods is critical to long-term investment success. Now is the time for the patience and resiliency of Warren Buffett. So yes, the April showers are yet to produce any flowers, but we know that one cannot exist without the other.
All that said, we are very happy with how things are going in the portfolios here. We continue to make adjustments when and where necessary but are always happy to chat further if you have questions. Have a great weekend. All the best.