My family is planning a vacation to a certain theme park that, of course, has roller coasters. Good grief! What was I thinking when I agreed to the trip?
My dislike of roller coasters is legendary. As a kid, I remember going to a theme park under the duress of relentless peer pressure and telling people afterward that my favorite “ride” was the nickel root beer stand. I wasn’t kidding.
As our upcoming trip draws closer, I’ve been reliving the few horrifying roller coaster rides I’ve been coerced into taking, especially that feeling when the coaster is inching upward—ever, slowly upward—and then, of course, the “I’m-surely-going-to-die” drop that follows. I honestly don’t understand the appeal of going to a place that shakes you down at the door to the tune of a mortgage payment and then terrifies you under the guise of entertainment.
While my fear of sudden downward plunges on a roller coaster is as real for me as ever, I noticed yesterday that I’ve pretty much conquered my fear of falling stock markets. Yesterday’s more than 270-point plunge hardly fazed me at all. Having ridden my share of stock market roller coasters, I haven’t always taken such scary rides in stride.
A change of heart
At the risk of sounding like I’m looking for a raise, I honestly believe much of what I’ve learned from Sound Mind Investing after working here for two and a half years has helped me become far less fearful of falling markets. If you’ve been reading the blog or newsletter for even a short while, surely you’ve heard the counsel to develop an investment plan tailored to your risk tolerance and time frame, put it in writing, expect some market turbulence, tune out the noise of market prognosticators, be an investor, not a trader, and trust in the market’s long-term upward trajectory.
But it’s one thing to hear the message; it’s another to take it to heart. People can say they’re comfortable with a certain level of risk. But if they sell their stock funds at the first southward tip of the market, their actions speak more loudly than their words.
More than knowledge
Some people believe wise money management simply requires knowledge and follow-through. If that were true, everyone would be doing just great with the whole money thing. But it isn’t, and that’s why they’re not.
To be sure, knowledge is needed. We need to fill our brains with the right info. But we need to be proactive in matters of the heart as well. If we’re not, our hearts will lead us down the wrong path, for in most battles between the heart and the brain, the heart wins.
The heart is where all the stuff that doesn’t fit on a spreadsheet lives—emotions, attitudes, and perhaps most importantly, identity.
Sound Mind Investing offers objective, rules-based investing strategies. They’re logical, rational. They make sense, and they’ve proven very effective over the years.
It’s good that we’ve kept emotion out of the strategies’ design. But logic alone won’t get you by when things get scary. You also need heart—the heart of an investor, which means your heart trusts your knowledge and at least doesn't get in the way of following through with what you know to be right.
How do you develop that? In part, knowledge plays a role. Social scientists say that life change is circular. Our attitudes shape our knowledge and behavior at the same time that our knowledge and behavior shape our attitudes. In part, it also comes with experience. It’s one thing to gain knowledge by reading a book; it’s another to live through experiences where you get to test that knowledge. You go from knowing something in your head, to knowing it in your heart.
The makings of a safe landing
When the markets get a little crazy, I sometimes think of Captain Chesley Sullenberger (“Sully”), the pilot of that US Airways jet that lost power in both engines shortly after taking off from LaGuardia on January 15, 2009, who guided the crippled plane to a safe landing on the Hudson River.
If you want to be reminded of what it means to be calm under pressure listen to Captain Sullenberger’s interactions with the air traffic controller.
You can’t miss the cool, composed tone in his voice. That’s the voice of experience, of a pro methodically working through his options and committing to a plan quickly conceived under unthinkable pressure.
But there’s a lot of heart there as well. In this news report about the incident, Sully’s wife referred to her husband’s love of the “art of the airplane.” Another pilot said Sully was, of course, using his instruments, but he was also “feeling the airplane.”
It took both—knowledge and heart—to bring that plane down safely. And it takes both to manage money successfully.
What did yesterday’s downturn tell you about yourself? Was your response shaped by your knowledge of investing? And did your heart trust that knowledge?