If you are a razorback fan, you will likely remember when the Hogs played Alabama in Tuscaloosa in 2011. It was one of the toughest games in recent memory. Arkansas quarterback, Tyler Wilson, took a beating by the Alabama defense that day. The real killer was when Alabama faked a field goal and had the entire hog defense on the wrong side of the field as they threw a touchdown to their tight end. He was standing all-alone because the hogs had “bit on the fake”. It was embarrassing and a momentum killer.
Unfortunately, the same thing happens to many people with their investments. In the heat of the moment, they react to what the market is doing, forget about their strategy, and often get killed when the market changes and they find themselves standing on the wrong side of the field.
Many investors are emotionally wired which can lead to them doing the wrong thing at the wrong time for the wrong reason. It happened in 2ooo. It happened again in 2007, and it happened in 2009 when many said we would never recover from “The Great Recession.”
Millions of people took what they thought was the smart route in January and February of that year and got out of the market while they still had something to convert into cash. Just like the Hog Defense that day in Tuscaloosa, it was obvious they needed to chase the ball (in the case of investors, seek the safety of cash). Instead, investors were burned when the market charged into what is now a five-year-rally, bringing most major indexes up over 150% from the bottom.
Had the average investor held to his/her strategy, they could have taken advantage of what the market had given them by continuing to invest regularly in their 401k plan at low prices during that down time. Also, if they had held to their strategy in the face of panic, they would not have “sold out” when it was obvious they needed to “chase the ball”, and the investments would likely have rebounded with the market.
But, like that game in Alabama, we are reliving history, and the only thing we can do about it now is learn from it so we won’t be destined to repeat it.
The less obvious lesson from that day is what didn’t happen. The Hogs didn’t walk off the field. In fact, they kept fighting against one of the best defenses ever to take the field in the South Eastern Conference. Tyler Wilson earned a place in the heart of every true razorback fan for his tenacity and the beating he took in the face of adversity. Because that razorback team didn’t quit and learned from the experience, they went on to win 11 games that year, to win the Cotton Bowl, and to celebrate one of the most successful seasons in University of Arkansas history.
As investors, we often have opportunities to throw in the towel when all seems to be lost. It is in times of fear and uncertainty that having a clear strategy and a plan can keep you focused on your goals. While no strategy or plan can assure your success or insulate you from the negative effects of a volatile market, it can give you a foundation for weathering the beating that markets can give.
How will you handle the next “beating” the investment world has in store for you? It could be another market meltdown. It could come from a spike in interest rates that causes bonds to spiral downward in value. It could even come from an unforeseeable situation that financial people call a “black swan” which is usually caused by an unforeseen world event. The world is a tough, uncertain place as is investing. How you handle it may make all the difference.