Discipline. You can’t be a successful investor without a healthy serving of discipline. But what does it mean to be a disciplined investor?
To be a disciplined investor, one must learn how not to react emotionally to market swings. It goes against human nature. Human nature tells us that when markets are doing poorly, we should cash out, and when markets are doing well, we should cash in.
But, it’s really the reverse.
Since trees don’t grow to the sky, we know that when markets are doing well we can expect to see a downturn at some point. And when markets are doing poorly, the cyclical nature of the market indicates that they will rise again, eventually.
Last December (2018), which was the worst December for the equity markets since the Great Depression I had a call from my son. He had opened an investment account with us two years earlier and this was the first time he experienced volatility. He was concerned about performance and wanted to cash out. I explained that, while we could do that, he would have to accept the loss that comes with cashing out while he’s down. My son is young and has a long time horizon. In the end he decided to stay invested. It didn’t take long for him to make up for the losses and be on the upswing again, and he was glad he did not react emotionally.
It isn’t always easy to be disciplined, especially when one of the pillars of investment management is that the markets are unpredictable. We can’t predict what might happen, so we never do. What we do instead is implement a disciplined, mathematical approach that is designed to anticipate volatility.
If you can stick to your process, especially when the markets are struggling, you are a disciplined investor.
And if you need any help, we are always here.
Associates of Krietzberg Wealth Management are registered representatives of Lincoln Financial Advisors.
Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.