Good morning & happy Monday!
“The connected economy of ideas demands that we contribute initiative. And yet we resist, because our lizard brain, the one that lives in fear, relentlessly exaggerates the cost of being wrong.”
Seth Godin
The other day I had an experience that I know many of us Floridians have had … there was a lizard in my home. Well, I really like lizards (as a teenager I would joke with out of state visitors that they were baby alligators) so I could not just simply let him run and hide inside my house as I knew that would be a death sentence for the poor little guy. So, I drop what I’m doing and start the noble task of trying to catch him. Well, wouldn’t you know it, that little lizard did not think I was trying to help him, but rather thought that I was trying to harm him, so we start a frantic chase throughout the house. As I’m sure you are aware … those little guys are quick.
That poor little lizard could not help it. His brain is wired to avoid being killed and his instincts kicked in to go into survival mode … he ran with all his might and hid in the best possible place he could find.
As a parent this same dynamic sometimes plays itself out. There have been times when my kids would be quite convinced that I am trying to make their lives miserable … when in reality I am working extremely hard to help them. This seemed to be very prevalent during the teenage years 😲
Our human brains are very capable of the same type of lizard brain thought processes. We desire safety, security, certainty … and investing certainly does not involve those words. In investing there is a tradeoff: safety or growth. The questions we often discuss in our meetings are “How much safety are you willing to trade for growth? How much growth are you willing to trade for safety?”
Is safety good? Of course, but there is a price: lack of growth and a slow eroding of your money to inflation.
Is growth good? You get, but there is a price: lack of certainty and fluctuations in portfolio value.
Especially during times of economic stress our lizard brains kick in and instantly go into “the world is coming to an end” type of thought processes. This can be so dangerous because our brains will try to trick us into thinking that safety is our #1 objective. It may feel the right decision for a season, but it can be deadly to our long-term financial success. Much like that lizard … if he was able to escape me trying to save him, he will be very grateful in the short run … but it won’t be long before he is a dead lizard inside of my home.
Because markets fluctuate with regularity (like every moment the stock market is open) this can be stressful if we watch it closely. My advice: don’t watch it closely … you can drive yourself crazy.
Here’s the deal: virtually every year this are pullbacks. Going back to 1980 the S&P 500 has been positive 31 of 41 years. During every one of those years there were pullbacks of somewhere between 3% – 49%. See chart below (the gray bars are the year-end return, the red dots with the negative number are the declines that occurred during the year – 2020 for example had a 16% positive return for the year, but within the year the S&P 500 had been down as much as 34%).
When the next pullback comes don’t let your lizard brain win … to quote Seth Godin again “Tell your lizard (brain) to shut up.” 😊
For the record, I was able to save that little lizard in my home and I set him free in the bushes in my front yard. I hope he ate lots of bugs in his lifetime because he sure gave me a workout 😉
My clients are amazing … so grateful for you to be one of them!