China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate. What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple. Your emotions and the actions you take during times of increased volatility or drawdown will ultimately have more impact on your long-term returns than any exogenous thing that may come along....
Nothing kills the long-term returns of a portfolio like throwing away the playbook in the heat of a market crisis.... We still cannot pinpoint the events that have marked previous market tops even in hindsight. Consider:
What happened on the day in March of 2000 when the Nasdaq stopped going up? Nothing, it just did.
What was the proximate trigger for the crash of ’87? There wasn’t one.
Why did the stock market ignore the real estate bust for 18 months until one uneventful day at the end of 2007 when all of a sudden it stopped climbing and reversed? We don’t know to this day....
If we cannot even identify the reason for why a market tops or crashes on a given day with the benefit of looking back, what makes any of us think we can do so in real-time or in advance? — Joshua M Brown for The Reformed Broker.
Read the rest of "The Biggest Threat to Your Portfolio" here.