To be an investor is to live with a certain tension. The market falls and its tempting to feel fearful. You have money invested, so it matters to you. It's natural to wonder whether it will continue to fall and how it might impact the plans you have for that money.
The fancy term for the tension is cognitive dissonance. Your heart-level desire for comfort is in conflict with your head-level knowledge that you should probably just ride out the volatility — that the right thing to do during times of volatility is to stay with your plan.
It isn’t easy to live with such tension, but it comes with the territory of being an investor. As we have written before, among the many risks to an investor’s success, the greatest one is the risk of getting in your own way by letting emotion sway decision-making.
That’s all well and good. However, if we’re not careful, the cultivation of investor-level emotional fortitude can turn into a dispassionate view of world events. We seek some knowledge about what’s causing certain investments to perform as they are, but the important thing is that our investments perform well. Or we read the news and our thoughts quickly turn inward, toward how whatever’s happening might impact our portfolio.
I was thinking about this over the weekend as I followed events in the Middle East. The events themselves were unnerving and worrisome enough. But then, mixed with reports of people dying or being injured, I saw headlines about how global markets are reacting, what’s likely to happen to the price of gasoline, and what the prediction markets are saying about all of it.
It seemed so cold, so detached from the reality of those who have lost loved ones or are worried about loved ones in harm’s way.
How, then, should we respond?
To the degree you are thinking about your investments today, this is a good time to remember that you are following objective, rules-based investment strategies. With such strategies, there’s no need to try to figure out how global events may impact your portfolio.
Momentum-based strategies, such as Fund Upgrading, Dynamic Asset Allocation, and Sector Rotation, aren’t designed to make fast moves in response to every market-moving event. Nor does their success depend on it. The strategies are designed to keep you in step with market trends. They won’t capture a change in trend right away; they’re designed to pick up on changes once a clear new trend has developed.
More importantly, this is a time to be on our knees in prayer. Let’s pray:
For those who have lost loved ones — that God would bring comfort in the midst of unimaginable anguish
For those who have been injured — that God would bring healing
For our military service men and women who are on the front lines, doing the most difficult part of the job they pledged themselves to do — that God would protect them, give them courage, and equip them with everything they need to do their jobs well
For our political leaders — that God would give them wisdom
Today, I am reminded of the SMI family’s response to the early days of the COVID-19 pandemic. As you likely remember, when the pandemic first began sweeping through the U.S. in 2020, it was a scary time. The rates of illness and death grew quickly. And initially, the stock market fell in breathtaking fashion.
How did the SMI family of members respond? With faith. With time in God’s Word. And with prayer. Late that year, we surveyed SMI readers, asking how they coped with that scary time. Some 85% cited prayer. When we asked which verses ministered to them the most, 550 people cited over 70 verses. We put those verses in a document that you may find encouraging right now.
First and foremost, people of faith
Sometimes it’s tempting to just stay in our lane — SMI is an investment newsletter, after all. But our goal isn't merely to help you build wealth for the sake of building wealth. Our goal is to bring glory to God and to help you do the same. Everything we write and speak about is through the lens of faith.
Yes, we certainly caution against letting the emotions of fear or greed drive decision-making. But that doesn't mean we want people’s hearts to be numb to the bigger picture implications of events. Our hearts are central to our design, which is why the Bible says, “Guard your heart, for everything you do flows from it” (Proverbs 4:23).
Seen that way, perhaps by doing what we can to take emotion out of investing, that frees our hearts to be more focused on the aspects of events that matter so much more.
