Lose the Lot and Keep Smiling

What a moment this is. To recap: The stock market entered bear territory (>20% down from all-time highs). The interest rate was raised by 75 bps a few days ago. Inflation, according to the CPI, is 8.5%. Bitcoin has sunk below $19,000. Gas prices are raising daily, above $6 per gallon in much of the country. Lay offs have started across industries. War is happening in Europe. Consumer sentiment is at an all-time low. A global pandemic simmers in the background. Everywhere you look, things look bleak.

If you’re like me, you’ve probably spent too much time on Reddit, Twitter, and elsewhere reading people’s gloomy predictions or hearing how much they’ve lost on their various investments. For me, this is the first time I’ve ever seen so much negativity around the economy. I was too young to understand the suffering happening during the Dot Com bust or even the Great Financial Crisis. But this is the moment I’ve always read about and heard about. The moment when fear and uncertainty is spreading. And yet, this is also the time when fortunes are made.

Assets become relatively cheap and those who were disciplined enough to stockpile cash, avoid buying overhyped businesses and assets, and who have the stomach to begin allocating when everything is down, are historically the ones who come out ahead. Anyone who has read a finance blog knows this objectively. But, we are all about to learn how difficult this is in reality.

I also recognize that we are probably in the first inning of what could be a very long and brutal economic period. Maybe the suffering thus far is only scratching the surface of what’s to come. My emotional indifference of the moment may soon give way to panic after a particularly persuasive article or Reddit story of losing it all. I cannot predict how I will react. And unless you’ve lived through something like this before, I’d posit that neither can you.

I, for one, will be observing with great interest my own emotional state and resulting actions throughout this process. Can I, like Seneca, learn to lose my entire estate and keep smiling? How do I feel when I’m reading these horror stores on Reddit about people getting margin called on their speculative crypto investments? How does my due diligence when researching an investment change? Can I stick to my investing plans?

It’s easy to say yes when I’m employed, the emergency fund is topped up, no debt, living expenses are low, I’m healthy, the family is healthy, and everything is objectively good. But how about when none of those things are true? These are the circumstances most of us cannot predict how we will react until we are placed in such a position.

Perhaps we will get that opportunity to learn who we are when all hope is lost, perhaps not. I don’t wish dire circumstances upon anyone but if it happens, we can only hope to get smarter as a result. To use the situation as our classroom into our own psychology and to adjust our lifestyle and investments accordingly.

Take notes and keep smiling!