It’s time for me to take a deep breath and step back from monitoring the market. After last week’s roller coaster, I’m too drained to worry about what will happen this week.
If you’ve ever played Roulette, those precipitous gyrations reminded me of betting on RED or BLACK. A rather simplistic choice with devastating consequences, you either win or loss.
Being a rather conservative investor, I’m of the “Go Long – Go Vanguard” approach through low-cost indexing; however, it’s undeniably hard to resist the mountains of financial products and tactics available.
Chatting with a friend who works in finance, we reviewed the different option strategies for hedging against short term losses. Even as a Chartered Financial Analyst (CFA), he admitted having a limited grasp on the actual execution of these theories. Both of us have resolved to spend the time to learn more about these after our respective obligations (Him: GMAT & marathon, Me: GRE & half-marathon).
From there it was a slippery slope.
Scanning for new purchases in convertible securities and long-short funds, the concern spread into my overall investment strategy and current holdings.
Did I have enough here? Should I exit out of there? Was there something I was missing?
SELL! SELL! BUY! SELL! BUY! BUY!
Nothing actually happened, but the situation definitely had me concerned…
To quote the Boglehead: “The point is, the last few weeks were a time when some risk showed up, and your job is to process it. The temptation is to deal with the discomfort by choosing a prediction. Don’t. Your job is to confront the reality of that uncertainty, that you do not know what will happen, and can only make the roughest guesses as to the likelihood of all these scenarios.”
Not until today’s drop did it finally hit me. These emotions emulated exactly the sentiments I wrote about in two recent articles: When Blogging Isn’t Blogging Anymore & Where the REAL Money Is. A great book was also written on this very topic – The Paradox of Choice.
We are so inundated with choices it paralyzes our actions. When the auxiliary aspects of blogging overwhelm our attention, more time is spent on inconsequential upkeep and away from writing. When we concentrate on the more lucrative jobs out there, we forget about developing our current career.
In a nutshell – We lose our focus!
Distracted from our underlying goals, we’re left looking in both directions instead of charging ahead. Now is not the time to change with the direction of the wind, but rather reaffirm our convictions.
This is why Mike advocates doing three things during a downturn:
- Rebalance Portfolios
- Harvest Tax Losses
- Assess Risk Tolerance
“Risk tolerance isn’t just about your ability to deal with abstract market declines. It’s about your ability to stay calm while your portfolio is tanking.”
So hopefully you’ll use this time to calm your nerves, assess your risk, and stay the course.
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