Maybe I can Protect you from Yourself…

Last week I wrote about “Jack”, a client who had directed us to liquidate all of the securities in his account. Despite our exhortations, Jack was unflappable and all of the positions were sold on MONDAY---yes, last Monday, which was the day before the big back-to-back stock market rally on Tuesday and Wednesday.

Jack came in on Friday morning to provide me with the rationale for his action. As I walked into the office, I looked at him and said, “I am so mad at you! How could you do that to my beautiful portfolio?” Jack grinned sheepishly and admitted that he knew that I would give him an earful about his bail-out. After an eight-year relationship with Jack and his wife, I wondered why he did not even ask to talk to me about the decision. The answer was obvious: had Jack spoken to me, I simply would have not let him do it and he very desperately wanted to sell.

“When I realized that I had lost $20,000 in one week, it just made me go off the deep end,” he admitted. When I probed further, Jack said that he had felt worried over the summer, but when the markets recovered, he thought that we had dodged a bullet. As the downside pressure mounted, he became more and more anxious. “Why didn’t you call me to talk about it?” I wondered. He just didn’t want to feel like a wimp, but then time wore on and the emotions grabbed hold.

I told Jack that even if he was right for a few days and the market continued to slide, his rationale was ill-founded. Then I went back to the drawing board and reminded Jack that he had a balanced portfolio; that he did not need to access the money in the account for at least a few years; that the account was up 7.5% this year; and most importantly, that he pays me to actively manage this money for him, so he had to let me do just that. He heard all of my explanations and said, “What should I do now?” Ah, the magic words that I needed to hear!

Last week I noted that Jack would be faced with a terrible decision: “either admit that he made a mistake and get back into the market or significantly reduce his spending while sitting in a money market account.” Thankfully, Jack chose the former and by the end of the day, his portfolio was repositioned. The snap decision cost Jack a few bucks, but in the end, at least he had the wisdom to see the error in his ways. Every so often, maybe I can help protect people from themselves!