Managing Emotions in a Volatile Stock Market

Jeff Karp |

by Jeffrey R. Karp, CLU®, ChFC®, CASL®
August 19, 2019

Here we are, just about two weeks removed from another stock market all-time record high and all the good feelings that go along with these kind of headline events.  But then it happens…..a couple of headline grabbing events, the talking heads start connecting dots that maybe should not be connected, a couple of less than expected corporate results reported and the markets go into a tailspin,  recently down (give or take) 6-7%.  

Then the Déjà Vu occurs—been here before and do not like it.  By the way, it appears that we can blame the temporal lobe of our brains for this feeling. Helplessness due to the inability to control the events- Fear of an unknown future creates worst case outcomes in our thoughts. 

Anybody who has seen the movie, GroundHog Day knows what this looks like.  Bill Murray certainly began to feel helpless in his inability to control events. (I googled that too and the meaning seems to be -’ a situation in which events are or appear to be continually repeated’). 

But are you helpless, or just using the wrong perspective? Maybe the right approach is to embrace the stock market adjustment instead of fearing it?

Let me add my perspective. Using the Groundhog Day concept, I ask, have we been here before and generally, what happens.  Historically the stock markets correct between 5-10% on average, 1-3 times per year. The pullback, on average lasts one month and takes about a month to recover to previous levels. Larger declines between 10-20%, on average can last about 4 months and take about 3 months to recover. 

Once the fear factor subsides, I will generally hear this comment “Looks like that was a pretty good buying opportunity” which means the greed factor starts to kick in. Fact: the two strongest emotions in investing—Fear & Greed.  

So how do I suggest you break the GroundHog Day response to market adjustments- control the fear and work the greed.  Get a shopping list of great companies to own that are now on sale and embrace the opportunity. This time maybe the feeling of helplessness will be replaced with a feeling of control.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  Investing involves risk including loss of principal.  No strategy assures success or protects against loss.