Fight or Flight – Lesson Learned

Imagine you had an extremely long hangover from a New Year’s Eve party causing yourself to have slept through the first two and a half months of 2016.  Once awake, you would likely try to catch up on what you missed.

You would pick up a paper and might be somewhat surprised that Donald Trump is leading for the GOP nomination.  On the other ticket, Hillary Clinton is being challenged a bit on the Democratic side.  You would be saddened to hear that David Bowie, Harper Lee, Antonin Scalia and Nancy Reagan passed away.  Aside from that, you may be less surprised to see that the Middle-East is still a mess, prices at the pump are about the same, and that things in general had changed very little.

You then pull up your investments on your computer to find that they had barely changed since you had been sleeping.   Maybe a slight increase, ho-hum.  “Not much happened in the financial world,” you might wonder.

However, somebody mentions to you that the first two weeks of January were the worst first two weeks of a year in the S&P 500’s history, returning -7.93% through January 15^th.  Befuddled, you pull up a graph of the time you missed, and the S&P 500 is slightly positive as of March 17^th 2016.  You look at the prior days and realize that many indexes had fallen 10-15% at any one point during the beginning of the year.

Wall Street Journal Online: 3/18/2016

Perplexed, you begin to Google stories from those days when the market was falling.  You want to know what happened.  You find stories such as these:

• CNN Money: Sell everything! 2016 will be a ‘cataclysmic year,’ warns RBS. – by Jim Boulden 1/12/2016
• Fortune.com: Analyst: Here Comes the Biggest Stock Market Crash in a Generation – by Chris Matthews 1/13/2016
• Bloomberg Business: So Yes, the Oil Crash Looks a Lot Like Subprime – Tracy Alloway 1/25/2016
• CNBC.com: Why the Market’s Drop May Just Be Getting Started – Alex Rosenberg 1/20/2016
• The Washington Post: The Crash of 2016? – by Robert Samuelson 2/10/2016

These are just some headlines from “reputable” news agencies.  Unfortunately other “news” sites that come up on Google, which I would refer to as “click-bait”, promoted even more troubling headlines.  These headlines are written so salaciously so that you to succumb to your fears and subscribe to their newsletter or buy their gold at inflated prices.

Seeing all of this after your long slumber makes you understand you missed the drop, the panic, the handwringing, and the subsequent recovery.  However, the results of your portfolio look as if very little happened.  Emotionally, you would have been better off for taking that long nap than if you would have been awake.  What would you have done if you panicked when the rest of the world seemed to be in January and February?  Sold, and locked in a loss?

It’s our nature to try and “do something” to avoid being hurt or to defend ourselves.  Our fight-or-flight instinct is hard wired within us.  It comes from our hunter-gatherer ancestors who roamed the Savannah Plains 200,000 years ago.  However, if we understand that this instinct is within us and others, we can choose a better alternative.  While I don’t recommend sleeping through it next time, we can be better prepared when panic inevitably ensues again.  Let the others fight or run at their own peril.  Make a plan to hold your ground or take advantage of the panic and be better off mentally and financially for it.

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