Onboard a Naval ship, during a crisis or pending catastrophe, the ship sounds the “General Quarters” (abbreviated “GQ”) alarm. All hands go to their proper battle stations on the ship to prepare for or prevent disasters from floods, fires, incoming enemy fire, etc. There is no way to predict these events, so practice is done repeatedly for the worst possible scenarios. Going unprepared would be chaos, and without a plan, there could be many lives in danger if, and when, the “real thing” happened.
For some investors, with this latest bear market, they were finally hit with the “real thing”. Most, if not all, did not see it coming. That includes advisors! Markets were at record highs, reaching the high on February 19th, 2020, all to come crashing down in record time into a bear market. Unfortunately, when it comes to predicting an event like the most recent bear market, or the 2008 crash, we just do not have the “crystal ball” to do so.
Because perfection can be almost impossible when it comes to investing, we must plan. During a crisis, there must be some control of the situation. We cannot control the markets. However, we can control where and how our money is invested.
Just as with the 2008 crisis, there will be articles in the coming years on some “investor” that got it EXACTLY “right” when it came to this latest bear market. They sold their holdings at the right time and bought back in and made a decent rate of return. It is a great headline, a great story, and, for many sites, it serves as great “click bait.”
Lost in history, of course, will be the stories of those that attempted this “timing the market” strategy, and unfortunately got it wrong. There are great lessons to be learned in those stories too, as many times there are fortunes that are eroded; some never to return.
It is much more enjoyable on a ship when the water is calm, and we are on our way home. Unfortunately, that is when accidents can and will happen. We must be prepared even when the times are good, and when the markets are high. hen crisis hits. It sounds so cliché to say to a client “your plan was built for this”. I am much happier to have been able to say that when giving updates to clients, then if we didn't have a plan at all.