Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
iceport
Posts: 4666
Joined: Sat Apr 07, 2007 4:29 pm

Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by iceport »

Jonathan Clements offers a timely inventory of classic behavioral mistakes to help provide needed context for the recent market volatility — and a guide for how to avoid those mistakes.

Don’t Lose It
HERE’S THE LEAST surprising thing you’ll read this week: You can’t control the financial markets.
But don’t despair: There’s also much that we can control, including how much we save and spend, the amount of investment risk we take, how much we pay in investment costs, our portfolio’s tax efficiency and—most critically at a time like this—our own emotional reaction to market ups and downs.
Feeling unnerved? It would be shocking if you weren’t. Think about all the ways that this year’s market action has messed with our heads.
The last of seven counterproductive behavioral responses Clements identifies:
Illusion of control. Faced with danger, often our instinct is to act. That can make us feel more in control of our destiny—but it may not be good for our financial future. Most of us hold a portfolio built to help us pay for retirement and other goals in the decades ahead. Should we mess with that investment mix simply because of a few rough days in the market? To ask the question is to answer it.
"Discipline matters more than allocation.” ─William Bernstein
BillyK
Posts: 75
Joined: Sat Sep 24, 2016 1:30 am

Re: Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by BillyK »

A very good article. I really like “Illusion of Control”. You see it so often where investors are anxious to take some type of action whether selling or buying to the point that they are jittery rather than just being patient and doing nothing.
User avatar
Topic Author
iceport
Posts: 4666
Joined: Sat Apr 07, 2007 4:29 pm

Re: Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by iceport »

BillyK wrote: Fri Feb 28, 2020 4:23 pm A very good article. I really like “Illusion of Control”. You see it so often where investors are anxious to take some type of action whether selling or buying to the point that they are jittery rather than just being patient and doing nothing.
I agree, it's a common illusion. We can see this behavioral mistake all the time even in calm markets in the way so many of us (myself included) try so desperately to "optimize" our AA, for example. It helps to keep up the illusion that we have more control over our investing lives than we really do, but it likely serves no other real purpose.
"Discipline matters more than allocation.” ─William Bernstein
User avatar
Eagle33
Posts: 1227
Joined: Wed Aug 30, 2017 3:20 pm

Re: Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by Eagle33 »

You have optimized your AA when you spend half your time wishing you had more equities, and the other half of your time wishing you had more bonds.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
User avatar
Topic Author
iceport
Posts: 4666
Joined: Sat Apr 07, 2007 4:29 pm

Re: Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by iceport »

Eagle33 wrote: Fri Feb 28, 2020 10:52 pm You have optimized your AA when you spend half your time wishing you had more equities, and the other half of your time wishing you had more bonds.
Precisely!
"Discipline matters more than allocation.” ─William Bernstein
tombonneau
Posts: 94
Joined: Tue May 23, 2017 4:24 pm

Re: Clements: Don't Lose It. (On Controlling Emotions in Market Turmoil)

Post by tombonneau »

Eagle33 wrote: Fri Feb 28, 2020 10:52 pm You have optimized your AA when you spend half your time wishing you had more equities, and the other half of your time wishing you had more bonds.
No one ever bet too much money on a winning horse.
Post Reply