Broker Check

Don't Be A Unicorn Investor

January 27, 2016


Take a breath. 

If you’ve been following the news lately, you know that the markets look grim.  But if you’ve been following the news your entire adult life, you know that we’ve been here before and we’ll be here again. 

Contrary to what many talking heads and pundits would have you believe, it’s not different this time.  We’ve had liquidity bear markets before and will again.  China has faltered before and it will again.  Emerging markets have melted down and they will again. 

To put it simply: it’s not different this time.  Period.  End of story. 

So instead of listening to all those breathless talking heads on some business channel, I recommend praying instead.  Pray that the Good Lord will bless us during times of market stress and give us the wisdom and knowledge to continue making good decisions. 

As a financial advisor, I have to deal with what I call “unicorn investors.”  Unicorn investors always say, “But Scott, it’s different this time!”  Take this conversation:

ME: “What’s different this time?”

Unicorn investor: “Oil prices!  They’re lower than ever!” 

ME: “But oil was $30 a barrel back in 2003.” 

Unicorn investor: “Okay … but what about the Fed raising interest rates?” 

ME: “The Fed has raised interest rates on nine different occasions, and on eight of those occasions, the market was up a year later.” 

Unicorn investor: “Yes, but what about terrorism?” 

ME: “Israel’s markets have done fine over time, and they’ve had to deal with more terrorism than anyone.  And after the worst attack in history (9/11), our markets were back in months.” 

Unicorn investor: “But I hear this could be a world-wide recession!” 

ME: “You mean like the Great Depression in 1929-30?  Or the Great Recession in 2008?  A recession isn’t pleasant, but we’ve been there, done that, and survived.” 

Then I say this:

“Mr. Unicorn, whatever happens in the next few months, we’ve seen it.  I agree that it’s unnerving.  It’s scary.  But that’s why we don’t make decisions based on emotion.  That’s why we have an investment strategy to fall back on.  That’s why we have a plan.” 

If oil falls to $25 a barrel—

If Iran launches a missile—

If Europe slips back into recession—

Then yes, it’s going to get bad.  But that’s why we have an investment strategy to fall back on.  That’s why we have a plan

Because we’ve been here before. 

Historically, market corrections (a 10% drop from a recent peak) happen every year or so.  Every few years, we have a 15% pullback.  Every 5–7 years, we see a 20% Bear Market.  Nothing is new under the sun.  So instead of panicking about something this routine, we’ll do what we always do: use this time to make sure you’re positioned to take advantage of longer-term rebounds that historically have always happened.  (That’s the worst thing about being a unicorn investor: they’re so concerned about the bad times that they miss the good times that follow.) 

So where do we go from here?  Well, liquidity is the issue.  There are very few buyers in the market right now.  As a result, this bear market is going to be a liquidity bear, not a recessionary bear. 

Here are some other concerns:

First, the oil and gas situation is a huge problem, and it will continue.  We’re not getting bounces.  Instead, oil investors just want to sell. 

The second problem is China, and it’s just getting started.  China is like an athlete that twisted his ankle and needs time to heal.  If the ankle doesn’t heal, it will get worse, and that is what’s happening right now. 

A third problem is that whenever the market goes up, it ends the day flat.  Every rally in a bear market has no traction.  In a bull market, rallies hold for days or weeks.  Now we’re getting “one-day wonders” that inevitably fail.  Every hope is dashed.  That’s a strong characteristic of a bear market. 

But you know what?  That’s okay.  This is nothing new.  We’ve been here before and we will again.  We’ve made it through hard times before, and we will again. 

It’s very important that you remember this, because there are four psychological stages that people tend to go through during a bear market.  Here are the four stages:

Stage 1: Denial

Right now, we’re in the denial stage.  Anyone who’s bullish is too stubborn to change their view.  Many people have their heads in the sand.  Many believe the markets will come back right away. 

Stage 2: High Anxiety

In this stage, many investors are like a deer in the headlights.  They’re frozen and nervous, but don’t do anything.  They are told by brokers and financial experts to stay calm and don’t panic.  We haven’t reached this stage yet.

Stage 3: Fear

In this stage, even the most bullish investors realize they’re in trouble.  In this stage, they are watching in fear as their portfolio burns.  They reluctantly start to take action as fear increases.  Often they say to themselves, “When my stock gets back to even, I’ll sell.” 

Stage 4: Panic

This is what I call the “uncle” stage.  This is when panicked investors throw in the towel.  They want to get out of the market while they still have something left.  By the end of Stage 4, many people vow to never buy stocks again. 

As a result, they miss the recovery that comes after.  By fleeing the bear, they never get a chance to ride the bull. 

Why am I telling you all of this?  Because by knowing what you know, you can skip all of these stages.  You can spare yourself the emotional roller coaster that most investors at this very moment are beginning to ride. 

During the next few months, if you ever feel yourself getting nervous about the markets, all you have to do is stop, take a breath, and remember that we’ve seen this story before … and we know how it will end. 

In the meantime, always know that my team and I are minding the store.  We’re here whenever you have questions or concerns.  We’ve got your back.  We’ll hold your hand the entire way. 

Our door is always open. 

Please let us know if there’s ever anything we can do for you.  And remember: don’t be a unicorn investor! 


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