Mastering Your Emotions

“We are in the middle of a war. If we cut our equity exposure in half now and wait, we have nothing to lose.” That’s a sentiment we hear time and again, in different forms, whenever equity markets decline. Selling stocks feels good in the moment because it immediately relieves the pain caused by falling prices.

On the other hand, it no longer feels so good when optimism suddenly returns and markets surge. What now? When do you buy back in? And what happened to the investment strategy you originally set for yourself?

This week offered a compressed lesson in market emotions within just a few hours. On Monday, equity markets opened deep in the red, only to rally sharply by midday. The trigger: President Trump announced productive talks with Iran. Some stocks jumped from negative territory to plus five percent in no time. A colleague from the Chief Investment Office returned from lunch and stared at the screen in disbelief. How quickly the world can change…

Controlling Emotions.

In the short term, emotions are the fuel that drives markets. Concern about wealth leads to panic selling and pushes prices lower. Over longer time horizons, however, corporate fundamentals take center stage again. Why should stock prices remain depressed if the underlying companies continue to grow their earnings?

We need to stay in control of our emotions. Bear markets and market crashes are a permanent feature of investing. Every serious client conversation about portfolio strategy addresses this openly: a self-defined equity allocation also means accepting a certain level of volatility. And yet, when it happens, it always feels worse than expected.

Enduring Setbacks.

We look at the long-term returns of the stock market and hope for similar outcomes in the future. In times of stress, we sometimes forget that the past includes major drawdowns, prolonged bear markets, crises and wars. High returns are earned by those who stay invested.

Investors who own solid companies and are well diversified across themes and holdings have little reason to act hastily. Short-term worries are the price paid for long-term gains.

Gutmann Viewpoint hopes for more peaceful times, wishes you a happy Easter, and will return on April 10.