Changes in stock prices can swing wildly, suddenly. So can our emotions. The combination of an out of control market and an out of control investor is toxic. But did you know there is another phase of the market just as dangerous? It’s when things are calm.
When the market is relatively peaceful there’s another, even more dangerous element. Persuasion. When things calm down after being volatile everyone says the market found its “footing.” Pundits in the financial media begin speaking slower while the urgency of doing something seems to grow. This is when the wealthy investor becomes vulnerable. Financial advisors, friends and bankers utilize this time to make their pitch. The pitch goes something like this.
“You should probably put on some positions here to prepare for the next run-up,” or “You should be buying at these prices to lower your cost basis.” Depending on your situation, there may be a grain of legitimacy to one of these statements, but the key is this. When you’re wealthy, you don’t have to do anything. You can if you like, but never think you have to.
When you’re wealthy, your first concentration must not be to attain more wealth, but to avoid losing the wealth you’ve already attained. In our “get more, more, more” society it’s easy to forget that time is a decaying asset. Your money should be enjoyed during the time you can best enjoy it.
Wealthy investors are not homogeneous. Many clients get extreme joy from constantly investing or growing a new business. In that case, continue doing what makes you fulfilled, what brings you joy. The key is to understand where you are, where you want to go, who you are, and who you are not. Don’t let calmer markets lull you into going back into the water just for the hell of getting wet. There’s a pretty famous movie that taught us to be extra cautious just when we think it’s safe to go back in.