Yesterday, we sent a note to our clients acknowledging the stress of our present times and wishing them good health. We also noted that their accounts with us have been rising in value throughout, and although not there yet, we are optimistic about the progress underway toward our price targets on corporate assets we’ve been waiting to buy. We received many happy messages in response.
Easy conditions don’t build the best sailors and, for the masses, financial genius is always before the storm. A rising speculative wave makes false prophets appear strong and the wisest look weak. As euphoria spreads, the prudent grow increasingly unpopular–dismissed as conservative, missing out and dumb. The longer this persists, the more math and reason are discounted, and the more self-destructive behaviours become widespread.
The hardest part of a commitment to financial prudence and discipline is that you are non-status quo. You don’t spend as much as you could, you save more than most, you avoid debt and, as an investor, you won’t buy assets that measure uneconomical by your ruleset.
You’ll pile up cash rather than buy risky junk just to look busy. You’ll counsel those that you care about to do the same, and you’d rather lose a client or a friend than expose them to untenable risk on your watch.
We do this because it has the highest probability of adding lasting value; of building financial resilience in support of lives that are full of great risk–every day in every way. We prepare for shocks because they always happen. Building and maintaining strong health and financial foundations are the self-preserving thing to do.
Like President Trump, undisciplined money managers that were taking undeserved credit for rising markets, are now blaming factors beyond their control for capital losses. Everyone is at risk of contracting the coronavirus, but don’t buy the popular line: not everyone is suffering financial trauma.
Risk management choices within our control have a huge influence on how we fare–indeed, the extent to which we manage them well is the most defining feature of our financial performance over time. Missing out on losses is far more definitive of end results than missing out on fleeting gains.
This global shock is offering yet another opportunity to adopt wiser policies and behaviours for the rest of your life. Yes, you can.
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