This blog post was authored by SageBroadview Principal, Larry Annello.
Recently I had the joy of bringing a new Golden Retriever puppy named Colbie into our home. Stretching the interpretation of the Family Medical Leave Act, I decided to spend a week at home with Colbie to acclimate her to the new surroundings. What I learned during our time together was that there are behaviors in a puppy that are similar to the behaviors of the stock market, and that patience and persistence are needed to manage both.
Puppies are in constant motion.
It was unintentional on her part, but during Colbie’s morning version of The Puppy 500 around our couches, she constantly tested my patience. Every now and then I reacted to her erratic behavior by shouting out my frustrations, even though this did nothing to diminish her enthusiasm. I soon learned it was better to let her burn off all of her energy and excitement, until she became calm and settled. Patience was the key.
The stock market is no different. It has its days when it is in constant motion, and as an investor you say to yourself, “Where did all that energy come from?” But as time passes, patient investors learn to accept the random motion and practice persistence with the market. Research shows that the volatility eventually washes out and that the market has provided long-term rewards for those who have avoided reacting to its erratic outbursts.
Puppies bark when they want your attention.
It became a test with Colbie to see if I’d react and how quickly I’d react to her verbal demands. She loved it when I would stop what I was doing, pick her up or let her out of her crate. Colbie was chalking up a psychological win every time I jumped up and went over to her while she was misbehaving.
The financial news media barks at us investors too. They shout the latest headlines to get our attention, whether it’s Greece, China, Puerto Rico or the threat of higher interest rates. But should the constant hype require you to disrupt your long-term investing plan with reactionary buys or sells into or out of international equities, bonds or other squeaky-wheel holdings? We believe in tuning out the barking, and sticking to the fundamentals of your diversified investment plan, based on your financial goals. (If you don’t yet have a plan in place, let’s talk.)
After the motion stops and the barking ends, puppies love to nap for long periods of time.
Of course I enjoy many of her waking moments as well, but especially when I look at Colbie napping peacefully, I see beauty and experience joy. At least in our household, she has fast become Man’s Best Friend.
Stock markets, too, calm down, rest and can become your best friend. You need to give them time and be persistent. When they are trying your patience, you need to remember the wealth of returns they are expected to offer in the long run. Recognizing how long you are willing to wait for them to settle down is called your risk tolerance. For our clients, we periodically measure risk tolerance, to determine whether their allocation of stocks and bonds remains a good fit for their household.
It takes patience to tame a rowdy market.
I am reminded daily by Colbie that she is still a puppy, and that she trusts me to guide her through this active growth phase. By hanging in there and being more tolerant of her erratic behavior, I feel I can meet her expectations and provide her with what she needs for long-term happiness in our home and our family.
At SageBroadview, we believe that patience and persistence are key behavioral traits to embrace as part of a sound investment strategy. When markets misbehave, we don’t jump out of our chairs. We prefer to sit tight and rely on the many principles of evidence-based investing to make the markets an important part of our happy lives.
Sage Serendipity: This week we’d like to remember the rescue dogs of 9/11; one is still alive. “Among the countless human heroes, sung and unsung, were the rescue dogs who helped scour the rubble for signs of life.” ~ The Dodo blog.