My agenda for our time together has always been simple and straightforward; to share some of the best ideas, advice and wisdom that I have learned from sitting at the feet of the masters and/or reading his or her material. Today’s narrative is questionably the most important counsel that I have received during my 36 years as a financial advisor and investor, so away we go. …
Our lives are controlled by two emotions, fear and greed. These two amazingly influential sensations are why I humbly argue that you … and, of course, me, are the greatest risks to our respective long-term wealth creation. If we are truly honest with ourselves, in hindsight, our poor investment decisions were not guided by logic, but by our emotions that involved greed and/or fear. That, my friends, is a recipe for ill-fated investment returns.
Greed, as in the intense desire for wealth and power is permeating the stock market. Just in case you have not come out of your cocoon you little caterpillar, the stock market has been on what seems like a straight climb from the pandemic lows of May 2020. Frankly, I have never witnessed this much euphoria in the stock market, as equities have climbed the proverbial wall of worry for about 18 months. It seems like bad news is always good news and good news is always great news.
From my vantage point, it is clear that most investors have been in a “risk on” mode for many months with little concern for risk. I suggest the poster child to underscore my position of the amount of greed circulating in the air is the much hyped topic of cryptocurrency, which has seized the world with a cult-like following starting back in 2009 and has been heavily debated and controversial ever since. One cryptocurrency has rocketed from $0.08 to $65,000 in just about 11 years.
Of course, it has not been a straight climb.
In fact, there have been numerous booms and busts of the cryptocurrency, which underscores the greed vs fear slogan. As of this writing (August 1) this cryptocurrency is trading around $40,000 a share while just a few weeks ago it closed just shy of $29,000. How’s that for volatility?
Nevertheless, the crypto frenzy is one of many indicators that I put forth has gotten out of control from a greed perspective. Thus, I argue that a much-needed “reset” of stock prices is necessary. Stated perhaps more simply, the stock market needs to remind folks that it is not this easy to make money and the best way to do this is to begin a gut wrenching decline that scares the snot out of people. History has clearly proven that when there is too much optimism in the air, the market has an uncanny ability to clear the deck. As most of us remember, the last so-called reset happened in 2008-2009, when the S&P 500 declined a jaw dropping 40%.
The primary take away message from this dispatch is that we must know and accept that bear markets, recessions, corrections, crashes and incredible volatility is common and expected, so why panic when any of the above storylines happen?
Additionally, let’s not forget that greed can turn to fear in a New York second, so why hit the panic button? This is simply how the game gets played.
Yep, we must keep our itchy fingers off the sell trigger! Of course, nobody knows when the snot will fly, let alone for how long and how deep, but it will happen, so let’s prepare ourselves emotionally for the inevitable event. It all sincerity, it would not surprise me in the least if the snot flying “stock crash” transpires before this narrative goes to print.
On the other hand, I would not be shocked if we do not see a prolonged stock decline for another one, two, or three years! Heck, it might not happen for another decade or so. Nobody knows and those that suggest they do are just taking a guess … an educated guess, but a guess nonetheless.
Bubbles and busts have happened since the dawn of financial markets, and they will continue to happen going forward. It is also worth noting that as crazy as it sounds, crashes are good. Crashes are hell, but in the end, they are good for us, as it provides a much-needed cleansing of excess optimism.
At the risk of appearing pompous or arrogant, I believe that most investors, which includes you and me, don’t have the intestinal fortitude to stay disciplined in our emotionally charged, 24-hour-news-cycle world, as it requires remarkable self-control, especially when fear replaces greed. I repeatedly see and read about boatloads of people that succumb to shocking misbehavior that makes their emotions strangers to common sense, which is why I believe that financial planning is more about people than portfolios.
If history is a good indicator of how you are likely to act when greed turns to fear, the chances are high that you will make big mistakes with your investment portfolio simply because you will let your emotions get the best of you. Until we invent a cure for the human tendency to flee stocks when fear permeates, it is almost certain that the vast majority of folks will make foolish decisions with their portfolio.
I truly hope that you are not one of them and it would give me joy for you to prove me wrong! No judgment intended and so sorry for the drama. I am running out of space, so I need to go.
Harry Pappas Jr. CFP®
Managing Director-Investments
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
818 North Highway A1A, Ste. 200
Ponte Vedra, Florida 32082
904-273-7955
harry.pappas@wellsfargoadvisors.com
The use of the CDFA™ designation does not permit Wells Fargo Advisors or its Financial Advisors to provide legal advice, nor is it meant to imply that the firm or its associates are acting as experts in this field.
Investment and Insurance Products are:
Not Insured by the FDIC or Any Federal Government Agency. Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate. Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested
Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a Registered Broker-Dealer and a non-bank affiliate of Wells Fargo & Company
Investment products and services are offered through Wells Fargo Advisors, a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.
This and/or the accompanying statistical information was prepared by or obtained from sources that Wells Fargo Advisors believes to be reliable, but its accuracy is not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
