1, 2, 3… Poof!

There are days when I must say this at least a hundred times to my two younger children, aged 7 and 8: “Be quiet!” A measurable effect? None. My Apple Watch continues to report: “Loud Environment!”

From an outsider’s perspective, though, it’s not my children who have a problem - it’s me. Doing the same thing over and over again while expecting a different outcome? That’s the definition of insanity. And yet, breaking this cycle is tough. Kids scream, you get annoyed, and you yell: “Can you please be quiet? No one can take this noise anymore!” 1, 2, 3… Poof! And the noise goes on.

I remember a client meeting during the tough stock market year of 2022, where someone shouted at me: “You have to stop the losses!” 1, 2, 3… Poof! The prices kept falling.

Out of Control

There are areas in life where we find it easy to accept that our control over the situation is limited - or nonexistent. Parenting, however, is definitely not one of them. On the stock market, we rationally understand that we cannot influence price movements. And yet, we still expect our asset manager to make the right decisions to prevent or at least mitigate negative developments. 1, 2, 3… okay, okay, I’ll stop now.

That’s why it’s crucial to stress-test your strategy during good times. Am I still comfortable with the amount of my wealth invested in stocks if their value drops by a third? It’s easy to say: “These are just paper losses.” But it feels like real, irreversible money going up in smoke. We can’t truly grasp how painful it will be - until we experience it. And trust me: It’s worse than you think.

That reminds me of a great quote: “The stock market is a touchstone for the cautious and a gravestone for the reckless.” Allegedly, this was said by Karl Schiller, former German Minister of Economic Affairs in the 1960s and 1970s. Other than this, he didn’t leave behind many stock market wisdoms.

My Takeaway: Those who take on too much risk get cold feet and are likely to sell prematurely. Only those who stick to their strategy through difficult times will ultimately reach their return targets.