SMI on the Radio: Facing Market Fluctuations Without Fear (audio and transcript)

Dec 18, 2018
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It’s understandable if market gyrations are making you feel financially uncomfortable. What can you do about that?

SMI executive editor Mark Biller offered some advice yesterday on Moody Radio’s MoneyWise Live. And he answered caller's questions.

To listen, click the play button below — or, if you prefer, scroll down for a transcript. (And for more radio appearances by members of the SMI team, visit our Resources page.)

MoneyWise Live, with Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT.

To ask a question on a future program, call 1-800-525-7000 and mention you have a question for either Mark Biller or Matt Bell of Sound Mind Investing.


Steve Moore: So will you panic when the market eventually and inevitably rolls over, or will you hold fast to your long-term investment plans? Our host, Rob West welcomes Sound Mind Investing’s Mark Biller to take the fear out of Market fluctuation and then your calls on anything financial. 800-525-7000. I’m Steve Moore — and we’re delighted you’re with us today on MoneyWise Live.

Well, Rob, Mark Biller is the executive editor at Sound Mind Investing. And the only thing that’s likely to make him panic is when he realizes on Christmas Eve that he forgot to purchase Mrs. Biller’s Christmas present.

Rob West: Uh, yes, but that would never happen, Mark, would it?

Mark Biller: No, no, no. That’s a rookie error.

Rob West: That’s right. We’re delighted to have you back today on MoneyWise Live. The article title will be talking about — Will You Panic When the Market Eventually Rolls Over? It’s thought-provoking — and especially on a day like today where it lasts, check the market was off about 500 points, and that’s on top of a sell-off on Friday. This is certainly a topic that’s on people’s minds.

And you know, it’s interesting, Mark, when you think about it, there are literally millions of young investors who have never seen a bear market — that has a very specific definition when we talk about a bear market — but for all intents and purposes, these young investors have just seen the market go up.

Mark Biller: Yeah, that’s absolutely right. You know, this bull market lasted almost 10 years. Could still be going — it’s up for debate at this point with the losses we’ve seen. But the main point there is certainly valid that anybody new to investing in the last decade, they’re particularly vulnerable to panicking when the market falls the way it has lately because they’ve really only known a more or less steady rise in value for the last several years.

Rob West: Well, you point to some really helpful research, I think, on what’s called the "emotional cycle" of the market — but before we get to that, let’s lean into this idea of the market “rolling over” in the article’s title. You acknowledge its "eventual." Are we there yet?

Mark Biller: Well, I wish there were a clearer answer that I could give you on that. The reason it’s so hard, Rob, is because even in this bull market that we’ve had this long bull market run, it’s easy to forget we saw much worse declines in 2010, again in 2011. We saw a similar kind of double correction back-to-back pattern in 2015 and ’16. That’s really very similar to what we’ve seen this year with the early correction back in February. A later one here at the end of the year.

The point of all that being, when it comes to figuring out if we’re in a true bear market, you really just have to be patient because when you get down into this, you know, 10-to-15% down, which is about where the S&P 500, the biggest of the big indexes are right now, it just difficult to say because it can go either way. So that’s why we we don’t encourage people to take drastic actions, certainly not with these types of, of drops of 10, 12% — that kind of thing — because those are so routine. We see those quite often in the market. So it could be. It depends, it’s definitely something we got to watch very closely at this point. But there’s no way to say definitively if we’ve rolled over or not at this point.

Rob West: Well, in just a moment, we’re going to get into the 10 stages of the emotional cycle. Mark, people have been studying this phenomenon for quite a while, haven’t they?

Mark Biller: Yeah, they really have. And that’s because you know at their essence, the markets are just collections of people acting on their fears, their desires of the moment. Sometimes those individual fears and desires take on a crowd dynamic that pushes them to extremes. And since this is really a “human nature” issue, it’s not surprising that these types of things have been going on for as long as there have been markets. So you know, one really old study, there’s an 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, [that] talks about the Dutch Tulip Mania, South Sea Bubble — some early examples. But yeah, this is, this is old stuff.

Steve Moore: Let’s see, we’re talking investing today and agronomy — flowers, tulips apparently. Give us a call. 800-525-7000. If you’d like to speak with Rob West or if you’d like to discuss investing with Mark Biller. 800-525-7000.

Rob West: Just before the break Mark, we were talking about the emotional cycles of the market. We’re going to get into some stages just to help people think through the emotional cycle, but you referenced something that I’ve always found fascinating. You mentioned the Dutch Tulip Mania. Give us a quick synopsis of that.

Mark Biller: Yeah. Well the really short version of that, there was a market in these Dutch tulip bulbs. Of course, the Netherlands used to be an economic powerhouse worldwide and they were the locus of the tulip mania and people literally were investing in tulip bulbs just like people invest in tech stocks today. Pretty crazy to our modern ears, but it actually happened.

Rob West: And this gives rise to this kind of group think that still happens today, Mark. So walk us through these stages of the emotional cycle, if you will.

Mark Biller: Yeah, I think that’s a good point, Rob. That does still happen today. You know, we’ve seen that firsthand and the tech bubble of the late 90s, again in the crisis selling of a decade ago. So these are not just ancient history. These still happen. And when you’re talking about this, this emotional cycle of the market — I’ll give you just a quick overview, but listeners can see this whole article on all 10 stages on our website at

You’re starting with the emotional cycle at its bottom in a bear market. So things are terrible. It’s the end of the world. Stock prices have been falling off a cliff. And then some positive news event triggers a little rally — uh, eventually buying picks up, starts to overwhelm this built-in skepticism and a new bull market forms. Now, eventually, and this can take many years to develop, like we’ve been saying, this bull market’s been going on for a decade now, eventually though, optimism to outpace the actual economic reality.

And that’s when you start to get some euphoria setting in. People think the old rules don’t apply anymore. And you get kind of a greedy buying madness. And that’s typically the peak of the bull market. And then, of course, the cycle reverses. You get some kind of unexpected negative news. The selling starts. Initially, people think that it’s just a healthy correction, but the momentum builds and eventually, that fear and doubt leads to more panicked selling. The pessimism gets overdone. And now we’ve gone all the way to the other end of the pendulum. Um, and you know, that can take hold until everybody who wants to sell has sold and that bear market hits bottom. And back and forth we go.

Rob West: Yeah, and the trick is to make sure that you don’t get caught up in that emotion because inevitably what we do is sell at the wrong time and buy at the wrong time because we’re allowing our emotions to drive us in that. When we do that, Mark, that’s moving us away from the biblical model of investing, is it not?

Mark Biller: It absolutely is. And that’s, you know why you always hear cautions on programs like this one when we talk about stock market investing about having at least a five-year time horizon, preferably 10. Why do we pick those numbers? It’s because we look at history and see how long these bear markets typically last, and we want people to have a long enough time horizon that they’re not forced to sell to meet their cash needs during these market selloffs. If you have a long enough time horizon, you can ride out these temporary dips in the market, wait for prices to come back before you have to do any selling. That’s where those time horizons and get their origin.

Rob West: Yeah. Mark, when we look at the biblical model for this, clearly we see long time horizon, we see recognizing your role as steward, not owner. We see the fact that we should be well diversified. This is not about get-rich-quick. We should be on the same page with our spouse. I mean, all these principles that Wall Street would say is just sound wisdom is really a right out of God’s word.

Mark Biller: Yeah, it certainly is. And you know, you can add to that, you know, some of these principles, we talk a lot about: diversification, and I would say as a branch of that, you know, having the correct asset allocation based on your season of life and that time horizon that we were talking about. You know, you really have to have an allocation and an investing plan that you believe in and you can stick with. Because the emotions of a bear market are going to be fierce, you know they are. And if you’re not grounded in a specific plan, you’ll get blown around and probably make some bad emotional decisions with your investments.

Steve Moore: Mark Biller with us today as our guest for the first half-hour of our program if you have an investing-related question. Let’s begin by going down south to Tampa. Uh, Brian, how can we help you, sir?

Brian: I just had a quick question with the Federal Reserve talking about tweaking rates and raising rates, even minimally as they have like quarter point, is that actually so detrimental to the market as it’s being portrayed as the market’s reacting?

Rob West: Mark, talk about maybe just to initially the role of the central bank in controlling the money supply. And then specifically to Brian’s question, your thought about, uh, an indication that rates are going to continue to move up.

Mark Biller: Brian, I think the best way to think about this is if you think about the Federal Reserve trying to "drive the car" of the national economy. They’ve got a brake pedal and they’ve got an accelerator. And when they’re cutting rates, they’re basically "giving the car gas" and trying to lower the cost of money so that businesses are more likely to borrow and expand and add jobs and that kind of thing. And then as they feel like the economy is starting to run a little bit too hot — and what I mean by that, as inflation is starting to pick up — then they start to "tap the brakes." And the way that they tap the brakes is by these interest rate increases.

Now one thing that makes it pretty tricky right now to really analyze this, the cycle and interest rates is that for so long the Federal Reserve has done really unprecedented action of cutting rates near zero and holding them there. And they’ve just never done that before in history. So we don’t have a lot of track record to go on to see what happens coming out of a period like that.

So to your point, they really have not raised interest rates to a level that in the past would have been a problem for the economy. The tricky thing to interpret is they have raised rates now eight or nine times and so coming off of an extremely low level, should we be looking at this as well? Rates are still at historically low levels overall or should we be looking at this as, wow, we’re getting close to nine [or] 10 interest rate hikes. And that’s why people are, are, are really analyzing these rate hikes so closely and when watching the economy for any that it’s starting to stumble as a result of this higher cost of borrowing.

Steve Moore: Where do you think we’re going to go and should we be concerned about the Fed’s next move?

Mark Biller: Yeah, I think Wednesday is going to be very interesting. Most market watchers are expecting another rate hike, but they’re also expecting probably some talk that says, okay, we’re going to slow this thing down. We’re not going to raise this quickly as we’ve been saying. And I think that if the market hears that, they’ll probably be a little bit reassured that the Fed isn’t going to drive the car right off the cliff.

Steve Moore: To Ohio. Margie, what’s your question today for Mark Biller and Rob West?

Margie: Mmy question concerns robo-advisors and if those are a good idea and if they are, should April, how much percentage wise should a person look at putting with one of them?

Steve Moore: Mark, define that — "robo-advisors."

Mark Biller: Yeah. So "robo" is typically a term that is talking about a non-human advisor. So you don’t have that face-to-face person that you’re interacting with. You’re interacting with a firm that has kind of "preset" automated portfolios, um, that they can apply to your situation. I like the idea of robo in some respects because you’re getting more of an automated, usually somewhat mechanical kind of a plan, and that’s usually a good thing for most people.

One thing I don’t like about robos so much is — and this is a little controversial because a lot of people love index funds — but if you’re going into a robo account with a lot of index funds and you don’t have an advisor to really explain the risks that go along with being an index funds, especially in an expensive market like we’re in now at the end of a bull-market run, I don’t think a lot of people understand that index funds don’t offer any sort of downside protection;. So that can be a tough thing for someone who’s not familiar and doesn’t necessarily understand because there was no advisor to explain it to them that if they’re in these index funds, they’re just going to ride right along with the market.

Whatever the market does, that’s pretty much what their account is going to do and that’s asking a lot of somebody’s emotional capacity, I feel. So it’s just important to know what you’re getting into if you’re going into these robo-type situations.

Steve Moore: Let’s go to — let’s see. I think it’s Linda in Fort Lauderdale. What’s on your mind today? Linda?

Linda: Hi. Thank you for your program. Iwouldn’t be able to tell you what I’m going to tell you if it hadn’t been for you guys many years ago, so thank you. I paid my home off and bought another home. But my big question now is about what’s going on in our economy and being 65 years old looking to retire due to some medical issues. But right now I’m invested in Vanguard — pretty much half of my assets. I’m 60/40 — 60 stock, 40 bonds and due to the situation that I’m in, I’m wondering, is that precarious? Do I cut back? How, when and how does one determine these kinds of things there? There’s a professional planner who oversees that as well, but I don’t know if he’s a Christian or not.

Rob West: Very good. Well, thanks for that. Just one clarifying question. You’re still working so I can assume you’re not pulling anything from these accounts?

Linda: That’s correct.

Rob West: Okay, and when would you anticipate, at least at this point I realize things can change, but when would you anticipate needing to begin to withdraw from this portfolio?

Linda: I’m not sure because I will have Social Security and I will have my retirement from the Florida...

Rob West: I believe we just lost Linda there for a second lender. You still with us? Oh, there she is. We lost you for a moment. So I, I realized that, uh, when you get to retirement, what you’re saying is between the Florida retirement and Social Security, you may not need to supplement your income from this portfolio?

Linda: That’s correct. Only unless I have major medical concerns.

Rob West: Okay. Very good. Mark, what are your thoughts?

Mark Biller: Yeah. You know, I think a lot of times people think you really need to get more conservative when you retire — and that is true to a certain point. But these days with the lifespans that many of us are, are living, you actually still need to be thinking about decades of keeping up with and hopefully outpacing inflation when you get to retirement. So I would not instinctively feel like 60/40 is too aggressive. There are some, some details maybe to play around with it, the edges, but somewhere in that 50/50, 60/40 seems appropriate, particularly if you’re not having to rely on that portfolio for income immediately after you retire. That gives you a little bit of leeway to be able to ride out any type of stock market downturn without having to cut into the principle of that account. So I wouldn’t, I wouldn’t feel like that’s out of order necessarily.

Rob West: And Linda, I’m glad to hear that you have a professional watching over that with you. Thanks for your call and your encouragement today.

Mark, before we let you go, just about a minute left, uh, going back to this emotional cycle that occurs when it relates to our investing, give us some takeaways. What are some practical next steps these folks need to know about?

Mark Biller: I think the big picture here, Rob, is you really want to be thinking — everyone’s seen a chart of the stock market with that line going from the lower left to the upper right over a long period of time. And if you think about that line and then think about a, kinda like a sine curve going up and down, up and down above that line. That’s really what we’ve been talking about today over the long term. People with a long-term time horizon, they can invest for that long-term line. It’s the people that are short term that are riding that up-and-down wave. That’s the market’s emotional wave. And so you just want to be careful not to focus too much on that short-term wave to where you miss out on the long-term line.

Rob West: Absolutely, Mark. Such wisdom today. Thank you, my friend, for joining us.

Mark Biller: Thanks, guys.

Steve Moore: Thanks, Mark. God bless you, your family, and hope you and your entire staff has a great Christmas. Thanks very much.

The title of the article that we’ve been discussing, Will You Panic When the Market Eventually Rolls Over? You’ll find it available to read — you don’t have to be a subscriber, it wouldn’t be a bad idea, however — Easy to find when you go there today. Back with more MoneyWise Live after this.

Written by

Joseph Slife

Joseph Slife

Joseph Slife has been a news writer for the Associated Press, a college instructor, and a radio host. He and his wife Joye have three grown sons.

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