A Good Night’s Sleep

The stock market is likely to rise…and soon. I do not say that because of any empirical data or analysis. I know that because JB called me yesterday to request that we go to cash in all of her investment accounts. “We just can’t take it anymore and we’ll re-evaluate in six months.”

When I heard the voice mail, I literally said aloud, “well, here’s the beginning of a bull market!” The reason I know this is that JB has done this before, only last time she did not even talk to me—she went behind my back and instructed someone else in the office to do the deed. By the time she actually took my call and I convinced her that it was imprudent to get out, the stock market had already started to rise. At our meeting at the end of last year, she thanked me for pushing her. Almost a year later, JB is about to make the same mistake.

Before getting on the phone, I pulled up the account performance. With the US stock market down approximately 12% through the prior session’s close, JB’s total accounts were down half as much. Although nobody likes to lose, the damage has certainly been contained. I then reviewed the notes from our last meeting and confirmed that JB would not need to access any money from the account for five years. Armed with that information, I was ready to make the phone call.

I thought that the conversation would go as the previous one did. I would talk about the fact that they did not need the money for five years and more importantly, that it is never a good idea to bail out completely because it is nearly impossible to get back in until after the market has gone up and by that time, you may have missed the best part of the rebound. I would then trot out my five survival tips for a bear market:

1. Part of being an investor is going through these nasty times. Without the downs, there can be no ups.

2. Because you have a diversified portfolio, you are not suffering nearly as much as the overall markets. Turn off CNBC and relax.

3. Since WW II-2007, the S&P 500-stock index has risen by an annual average of 9.1% and there were lots of bad times included in that time horizon.

4. You are purchasing shares at low prices, which should benefit you over the long term.

5. You were smart enough to keep an emergency reserve fund set aside that is not invested in the stock market.

But after talking to JB, new information emerged. JB explained that her husband was ill and that she just could not bear the thought of worrying about him and the portfolio at the same time. “I just want to try to be able to sleep at night.” I dutifully reduced the risk in the portfolio and made a note to check back with JB in three months. The experience was just another example of how emotions creep into the investment world…sometimes it’s worth listening because sometimes a good night of sleep is far more important than any potential gains in a portfolio.