It was 1939. We were on the brink of World War II. Wanting to raise the British public’s morale the Ministry of Information issued a rallying cry: Stay Calm and Carry On.
Let’s fast forward to 2012. The conflict we’re facing today (and have been facing since 2008) is one of global economic survival; and it’s time to pause, take a deep breath, get our emotions under control and think rationally. Stay calm and carry on, in other words.
Easier said than done, I know; especially now, when the level of volatility we’re experiencing is extreme; and there seems to be no end in sight. But if fearful investors continue to allow themselves to be influenced by the media, and their messages of doom and gloom, and if they continue to act irrationally — it’s likely that our problems can and will get worse.
What I’m talking about is ‘behavioural investing’, and just how easy it is for us to get in our own way. Human nature being what it is, investors tend to make decisions based on emotions:
Who wouldn’t have wanted to earn a consistent 10% when most other investment returns are less certain? Our desire to be richer, quicker (greed) was all Bernie Madoff needed to bilk thousands of investors out of billions of dollars. Behavioural investing.
Who wouldn’t panic when everything you read and everything you hear is focussed on how dim our prospects are? Fear causes us to behave irrationally — which, in turn, contributes mightily to the chaos we’re seeing right now. Behavioural investing.
What really caused the tech bubble of the late 1990’s? Like lemmings we bought into the ‘movement’ and followed the lead of all the speculators who were betting on the perceived future value of the technology industry. An investing frenzy ensued; and, as a result share prices skyrocketed. Behavioural investing.
And now, during times like these, when we’re experiencing extreme market volatility, it’s more important than ever to be aware of what drives our investment decisions and, to control, and even change, that behaviour.
Fear-inspiring headlines may sell newspapers and books and increase viewing audiences, but they can also result in a rash of selling sprees — and nobody wins when investors misunderstand, and end up selling at less than an investment is worth.
In-it-for-the-long-haul value investors look beyond what a company’s current share price is. We look at who’s in charge and ask ourselves, “Is the leadership sound?” We look at the quality of their balance sheet and how realistic and positive their future projections are.
This is a time to stay true to our principles. This is a time to be disciplined and stop acting impulsively. This is a time to make sound, informed and rational decisions.
And I wonder — maybe this might also be a time to reflect back on another poster produced by the British government when war seemed imminent: “Freedom is in peril. Defend it with all your might.”
Well, defending our financial freedom sounds like a great rallying cry to me.