The year was 1994:

  • The Shawshank Redemption, Pulp Fiction, The Lion King and Forrest Gump were some of the top grossing films.
  • ER and Friends debuted making Thursday night “must see TV” on NBC.
  • Yahoo and Amazon were launched.
  • Richard Nixon died.
  • Kurt Cobain committed suicide.
  • O.J. Simpson was arrested and charged with murder.
  • Major League Baseball players went on strike.
  • A first-class stamp cost $0.29.
  • The Dallas Cowboys defeated the Buffalo Bills in the Super Bowl.
  • Steven Spielberg won Best Director for Schindler’s List.
  • RadioShack trademarked and first used the slogan “You’ve Got Questions.  We’ve Got Answers.”

That last bullet point is particularly relevant given the current turbulence in financial markets.  People are seeking answers.  We’re encouraging questions.

BTW – turbulence seems to be a great metaphor.  Frequent fliers calmly cope with in-flight turbulence while first-time fliers want to rush the cockpit and bombard the pilot with questions (and if that doesn’t work there are always parachutes).

It’s the illusion of control.

Gamblers have it too.  Ever been to a casino and watched someone blow on the dice before rolling?  Notice how they opt for a soft toss if wanting a low number and a hard toss for a high number?  Outcomes are mathematical probabilities that do not change – ever – yet this fact is ignored in hopes of controlling the outcome through how soft/hard the dice are tossed.

During turbulent markets seasoned investors act like frequent fliers whereas amateurs and speculators seek predictability and the illusion of control.  The emotional just want someone to tell them what’ll happen next presumably so they can buy or sell accordingly to alleviate their fear and anxiety.

We can’t stop people from deluding themselves into thinking they have control.  We can’t stop people from asking questions.  Instead we turn to RadioShack but with a bit of juxtaposition.  We suggest that during turbulent times in the financial markets rather than seek answers people should ask themselves questions.  Here are some ideas:

  • If I sell now what is my plan for getting back in?
  • Will my lifestyle be impacted in a meaningful way if asset prices continue to fall or am I just fearful that it will?
  • Did I build my portfolio with the understanding that asset prices can and will fall from time to time?
  • Do I understand what I own and why?
  • Have I overestimated my appetite for risk?
  • Why am I ignoring my time horizon and focusing on short-term price movements?
  • Is the money I’m “losing” needed in the next few months/years or do I have sufficient liquidity and access to cash?
  • Do I understand the range of potential outcomes when investing?
  • Does my investment strategy reflect my personality?
  • Is this the first time I’m experiencing volatility?
  • How did I react during the last “major” decline in the prices of financial assets?

There are of course no right or wrong answers.  These are questions about perspective.  Answers vary depending upon individual circumstances.

Although these questions are applicable no matter the environment they’re especially useful during times of volatility as these are the times we feel the need to act – to give in to the illusion of control and do something for the sake of doing something.

The headline that we’ve buried is this:  the most important part of investing is having a plan and sticking to it.  Even the best of plans goes awry when straying from it because some talking head is pouring heaping glasses to an audience thirsty for the illusion of control.  The future is unknowable and something you cannot control.  The most important reason for creating a plan is that it forces you to focus on what you can control.