A Tale of Two Emotions

Quite a few years ago I was very excited to be asked to speak at one of Towson Universities graduation
ceremonies. I had the honor of representing the Alumni Association and I was excited to be a part of such a
milestone for so many students and their families. As I traveled to the University, I was in a good mood with the
radio probably louder than it should have been and my foot a bit harder on the gas pedal than it should have
been, especially given that it was raining. Before I realized it my car started to spin out on the highway. I saw
the cars around me and panicked, knowing that there was very little that I could do.

My feelings of happiness instantly changed to those of panic and fear. Luckily, somehow, I stopped on the
shoulder with no damage to my car or anyone else’s. The panic slowly subsided and I continued my journey,
albeit much slower.

The feelings and emotions that I went through, all within a very short time period, were very normal. It is these
emotional responses that have helped humans to survive, adapt, and certainly to succeed.

From an investment standpoint, last year was not the most fun investing experience most of us have had. The
broad equity markets declined by 25% at one point, only to end the year down 19.4%. And fixed income assets,
the assets that were supposed to help offset negative fluctuations from our equity exposure, suffered the worst
year ever. Bond yields jumped dramatically, resulting in price declines. Our happiness and excitement with the
markets performing so well in 2019, 2020 and 2021 were quickly extinguished as asset values temporarily
declined last year. Our previously strong feelings of comfort were very quickly changed to feelings of concern.

These feelings and emotional responses are very normal. To see the value of one’s assets decline, even if we
know logically that these declines have always been temporary, is not fun. And since the average investor tends
to not only underperform the markets, but also typically their own investments, these periods of time where the
markets go from elation to fear and back to elation again often cause very detrimental behavioral mistakes.
This is exactly why we need to focus on those few variables that we can control. Your planning, how much you
are saving, if in an accumulation phase, or how much you are spending, if you are in retirement. We know that
publicly traded businesses have tended to provide a rate of return of around 10% per year on average. Yet very
rarely do the markets actually do an exact 10% each year. Typically, the capital markets generate positive rates
of return about 75% of the time. While that does mean that the markets have tended to decline about 25% of
the time, these declines have always been temporary and shorter-term in nature.

By focusing on your longer-term planning, your savings, spending, and certainly your actions and reactions
during the market’s various cycles, we can help to ensure your success. While it is very easy for our mood to go
from elation to fear and back again, focusing on the longer-term helps to give us a better perspective, thus
reducing some of our natural concerns and fears. Helping us to avoid reacting, typically at the worst time. Our
behavior during times of stress is almost always much more important than the actual event itself. Sometimes
we just need to slow down when the road gets too slippery and do our best to enjoy the ride.