Good morning & happy Monday!
“Your perspective will either become your prison or your passport.”
– Steven Furtick, pastor
So, I’ve got a funny story for you.
Last month I went to the ophthalmologist and got an update on my prescription. With that updated prescription I purchased some new glasses from an online retailer I had previously purchased glasses from.
On a Friday afternoon my glasses were delivered, and I was excited to try them on as I was trying transition lenses for the first time (not sure where the line is for entering middle age … but I think transition lens must put me solidly in that camp 😉).
As soon as I put the new glasses on I was taken back by how strong the prescription seemed. I was expecting to see better, but instead it took my eyes a few minutes to adjust, and I did not feel that I was seeing better. My sight was different, but did not appear to be better, it was quite odd.
I figured I just needed to give my eyes some time to adjust, so I went all weekend wearing the new glasses. My vision most certainly did not seem to be improved, but it was not unmanageable … I just figured my eyes would continue to adjust.
Well, on Monday afternoon I got an email from my eyeglasses company that said, “We’re so sorry! A website error led us to put your lenses in the wrong sides of your frames.” The email went on to say that they were overnighting me corrected glasses.
Now everything made a whole heck of a lot more sense. I flipped my glasses upside down and WOW … I could see so much better. For the rest of the afternoon I wore my glasses upside down. Needless to say, that was probably not my best look 😉.
My new glasses arrived, and it sure made a huge difference having the correct prescription for the correct eye. I could see so much more clearly. 😊
This got me thinking about what we see as investors, and how the lens in which we see things can change so much about our investment experience.
As I’ve mentioned countless times, the media sells doom & gloom. It keeps us tuned in so they can sell more ads, more clicks, more subscriptions. If I view the financial world through that lens I’m going to be paranoid. It seems that the sky is always falling if I binge watch CNBC, Bloomberg, or Fox Business.
If I view the entire financial world through a lens of cynicism and sarcasm, I can put myself in a bad position as an investor.
If my view is overly optimistic, I might make wrong decisions. If my view is overly pessimistic, I might make wrong decisions.
My main contention is to view things as realistically as possible. Down markets happen. Rising markets happen. Bad things happen. Good things happen. Some headlines are great, some are disastrous.
I’ll give one hypothetical example of how this could work.
Let’s say as the market was reacting to the Covid-19 pandemic market crash an investor got spooked and said, “Get me out of the market, and I’ll get back in in 6 months.” The market dropped from a value of 3,386.15 on February 19, 2020 to 2,237.40 on March 23, 2020, a nearly 34% drop!
Let’s say this hypothetical investor got out on day # 12 of this horrible 24-day crash, that would have been March 6, 2020. The S&P 500 closed at 2,972.37 that day.
Six months later, Monday, September 8, 2020, the investor reenters the market after things had “calmed down a bit.”
Now, in this example the investor was “right” for 12 days. On March 10th, March 15th and March 20th he feels really good about his decision as the market continued to drop.
By the time he reenters the market on September 8, 2020 the S&P 500 was at 3,331.84. That’s still below the all-time high of 3,386.15 on February 19, 2020 so this might have seemed like a wise strategy. But remember, he bailed at 2,972.37. Those six months (some of which continued the dramatic drop) cost the investor roughly 10.8% return.
Now, on the surface that may not seem that big of a difference, and maybe even a wise strategy because he missed so many ugly days in mid to late March 2020. After all he only lost roughly 17.5% when the market dropped a total of nearly 34%
Let’s say he had $1,000,000 to start with. If he invested directly in the S&P 500 (which you cannot actually do) and didn’t factor in fees & dividends, then by the time he sold he would have had roughly $825,000. Upon reentering on September 8, 2020 through the end of August 2023 (S&P 500 value 4,507.66) this individual would have a value of roughly $1,183,791.
Compare this to the investor who just rode through the entire journey … he would have had roughly $1,331,205.
There is nearly a $150,000 difference between those two figures! The only difference, the lens in which they saw things and acted upon accordingly.
Let’s say these 2 investors are my age, 43 years old, and they both stay invested until age 65 with a compounded rate of return of 7%. By age 65 the one who spent 6 months out of the market would have $5,497,248. The one who stayed invested the entire time would have $6,181,804.
That first investor made one mistake, one time and it cost him well over a half a million dollars. See how costly even short-lived mistakes can be?
Proper perspective is so critical for successful investing. Without it we might think we are seeing things we aren’t, or not seeing things we should, or seeing things differently than is profitable.
I believe one of my most important roles as your financial planner is to provide a proper perspective that can so easily become distorted by so many influences in our world. Powerful forces such as fear, greed, fear of missing out, peer influences, and the media all have the potential to cause us to lose our focus, much like looking through the wrong glasses lens.
But no matter how strong the temptation is, we will not give in. We are long-term, goal-driven investors who refuse to be detailed by any faulty perspective. We stay the course because we understand that patience and proper perspective are critical to our long-term success.
Thank you for allowing me to be a part of the story you are writing. It is an incredible honor and joy! Reach out anytime we can support you.
Make it a great week ahead!