How to Handle and Survive Market Volatility
I was talking to a friend recently. He's the CFO of a hedge fund in New York City. And I asked him how are things going? How's business?
And he said to me, things are crazy, volatile, difficult. The market is up and down.
I guess more down than up. Certainly the swings are significant.
And so he's, even though he's the CFO and he doesn't really deal with the trading and the day to day, there's no question it affects him and it affects his work and certainly those that he works with and for.
That got me thinking a little bit. I'm not an investor. I certainly can't offer advice about how to handle markets and market swings and things like that per se.
But I do know that there are some sound investing principles that are relevant to all of us dealing with volatility because we all have it.
We all have ups; we all have downs. And these sound principles all relate to the idea of “stay”. In other words, not flee, not run to the hills when there are challenges, but to be able to hold on and here are the three concepts relating to stay.
Number one, stay the plan,
Number two, stay invested, and
Number three, stay in growth mode.
Those are the three and I'd like to unpack that a little bit because I think it's relevant to all of us in different ways.
Number one, we have a plan. If we feel that our plan is a good plan, that our plan is sound that we've bounced it off of good people – maybe we have mentors or people we trust – stay the plan. Don't let outside circumstances throw you off course. Now, that doesn't mean that your plan can't and shouldn't be adjusted from time to time. But believe in it fundamentally that it's the right thing for you.
Number two, stay invested. The natural thing that people think, they see their portfolio start to tank and they just sell, sell, sell. But the reality is that it is the worst strategy that you could have. What you want to be able to do is keep your holdings because ultimately they will turn back and if you sell them you're going to sell them for a loss. And I think that this is relevant as well for the work that we do. Sometimes we don't see immediate results and it almost seems like we're going backwards and should I continue to do this anymore? But if we stay invested and we continue to put work into ourselves and work the plan that we've talked about before, then you can see great results.
Number three, stay in growth mode. Again, the normal inclination is when things get difficult, we want to kind of shrink back. We want to sell off, we want to go into our little caves and hide until things get better. But sometimes the greatest opportunity for growth, the most likely opportunity in a sense that we will succeed, is when things all around us look terrible. And we just want to hide. Why is that a great time? Because everybody else is running. And so when everybody's running in one direction, we run in the other direction. Because the other direction is where the true opportunity lies. And so whether you're an investor buying stock at a reduced rate, or whether you're an individual who is continuing to find opportunities for growth, even when the circumstances around us don't seem to support it, all of those things I think can help us address the issue of volatility because we all have it and it can be challenging. But if we approach it with the right strategy, we stay centered, we stay focused, we have good people to talk to and we communicate often, we will find that it's a pathway to long term success.