America is a can-do country. Our heroes are action-oriented and full of the right stuff. Most successful people got that way by using their skills to make something happen. Rambo claimed authority by showing up with the biggest gun!
Business responds well to can-do, positive, and active management. If business turns down, there are lots of things a smart business person can do: Make more phone calls, hire more sales-people, buy advertising, change the product, have a sale, fire the sales manager, buy the competition, increase commissions, or move to a better market. Success in business depends on active management.
Investing on your own (particularly in stocks, bonds or mutual funds) is a different kind of animal. It is a very passive activity. Markets don’t respond to our can-do attitude. We can’t just whip them into shape. It doesn’t care if you brought a knife to a gun fight. They have their own flow. So, we must attach ourselves to the market’s movements and allow it to carry us to our goals.
More often than not, if you have a good strategy in place, the best single thing an investor can do during a disappointing season is nothing. Of course, this type of thinking can make a successful, can-do, action-oriented, gung-ho investor just a little crazy. During times of stress, negative performance, or no performance, he wants to do something. All kinds of self-defeating behaviors come to mind: Fire the advisor, liquidate the account, move to another brokerage, sell the funds, anything other than sitting still! The fund that looked so good during last year’s big recovery now looks like a turkey. An advisor who remains focused on the long term, staying put, and maintaining the course of the plan, obviously must be some kind of wimp right? Any idiot can see things are falling apart and the Rambo in all of us demands action now!
Investor impatience is compounded by a relative pain, relative time problem. Portfolio downturns hurt a lot more than good times feel good. it is much more painful to see your portfolio lose one percent than pleasant to see it gain one percent. And it feels longer. Two years of back-to-back declines, underperformance, or even just no performance can feel like a lifetime. And, as we have seen, even a superior portfolio will go through occasional extended periods of disappointment.
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