Timeless Truths & The Cycle of Market Emotions

Just 30 days ago, on Feb. 18th, markets were at all-time highs. Today, fear grips the market and recession is at the top of every financial pundits’ mind.  Benjamin Graham, said to be one of the best investors of all time, and a mentor to Warren Buffett reminds us:

Control what you can control: yourself, your emotions and your response (or behavior) to those emotions.

Through many of the articles I’ve read this week, one stood out to me. Here’s an excerpt, written by the Collaborative Fund:

The majority of your lifetime investment returns will be determined by decisions that take place during a small minority of the time.

Most of those periods come when everything you thought you knew about investing is thrown out the window.

How you invested from 1990 to 1998 wasn’t all that important. The choices you made from 1999 to 2001 shaped the rest of your investing career.

What you did from September 2008 to March 2009 likely had more impact on your lifetime investment returns than what happened cumulatively from 2002 to 2007, or from 2009 to 2017.

The pilot’s famous answer when asked about his job — “Hours of boredom punctuated by brief moments of terror” — applies perfectly to investing. The brief moments of terror are the rise and fall of markets like this.

Ask yourself: Am I a speculator or an investor? What is the difference?

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Improving Investor Behavior – Investing in Panic

A lot can change in 30 days. One short month ago, markets were knocking on the door of all-time highs, businesses were doing well, and Joe Biden was behind several candidates in the Democratic primaries.

Oh, how things change quickly. Very quickly.

Even when compared to historic drops, the decline of about 18 percent that we’ve seen in the broad market indices took only 13 days. The start of the Great Depression took 28 days to reach that level. In 1998, it took 31 days. The Great Recession didn’t even make it in the top five fastest drops.

I want to focus on two questions in this column: First, to what can this speed of this market drop be attributed; and second, is it warranted?

All dramas need a villain. This time it’s the Coronavirus. The rapid spread of the virus led to ghost towns (Wuhan), which in turn led to locking down an entire country (Italy). This is a serious virus, and any amount of death or damage caused by it is too much. I don’t intend to trivialize it, nor the efforts of healthcare workers around the world fighting on the front lines.

But as investors, we have a mandate to try and understand where to draw the line between reasonable concern and emotion-driven panic. Too much emotion leads to panic selling, which in turn creates opportunities for those willing to buy when others are fearful.

I’d argue that we are well over the line of reasonable concern and deep into an emotional panic. During the 2008-2009 recession, corporate profits declined 46 percent, according to Brian Wesbury, Chief Economist at First Trust. Comparably, the current declines point to an estimated profit decline of 50-80 percent. Effectively, the market is saying that Coronavirus will have a greater effect on American businesses than the Great Recession, a time in which the entire monetary system seemed to be teetering on edge.

Consider these five critical elements of an economy: The Federal Reserve, taxes, regulatory policy, trade policy, and spending. What’s the status of these? The Federal Reserve just announced yet another cut to rates last week, making them even more accommodative than they already were. We just passed significant tax reform two years ago. Burdensome regulatory policies have been reduced. Trade policies (while challenging) have shown progress. All that to say that our economy is a pretty good place for business right now, and far better than it was during 2008-2009.

If the economy is strong and unemployment continues to be at an all-time low of 3.5 percent, why is there such a panic? I think part of it is the unknown. We’ve seen movies and TV shows designed to scare us with viruses. A disease that demolishes populations, creates zombies and generally wreaks havoc. We’re seeing something we don’t fully understand, and governments around the globe are reacting. Social media posts are encouraging everyone to start wearing gas masks and stockpiling toilet paper. Media, both traditional and social, perpetuates panic with continuous updates from a variety of “experts.” Couple that with the financial industries’ recent trend of eliminating trading costs and arming investors with phone apps, and you start to understand how easy it is for investors to panic sell with virtually no barriers.

On February 3, some 12,000 Robin Hood (a “free trading” app) investors bought Tesla shares for the first time. It reminds me of Bitcoin in 2017 and the dot.com bubble of 1999. Greed is a powerful emotion. When prices decline, human nature extrapolates that values will go to zero. Fear overtakes common sense, rising to panic.

Going one level deeper, consider a popular investment these days called exchange-traded funds (ETFs). These derivatives are designed to mirror the performance of a basket of underlying assets, usually stocks. For example, this allows an investor to buy a share of an ETF that reflects the performance of the entire S&P 500. Investors like them as they provide a low-cost method of diversification.

But behind the scenes, there’s a lot of trading going on to keep the derivative in line with the underlying asset. This gets complicated quickly, but suffice it to say that I think ETFs may be contributing to the dramatic swings we’ve seen lately. Liquidity, options, and other derivatives drive big moves, and these funds utilize tons of them. Computer-driven buying and selling mean it can all happen in a moment’s notice. I think the very financial instrument that was designed to give investors an edge has increased volatility and speculation.

Even when armed with logic and facts, our emotions can still get the better of us. There’s no doubt that headlines are scary, and the market drops are meaningful. But logic has to win over emotion. Think about this: during the Apollo 13 mission of 1970, the moon landing turned bad when two oxygen tanks and two fuel tanks failed. According to Jack Swigert, the chief pilot on the mission, had those variables been thrown at them during the simulator drills, they would have responded, “Come on, you are not realistic.” No one could have seen this coming, but it happened. One month ago this whole scenario seemed impossible, but here we are.

It’s during times like these we are reminded of the importance of good investor, and indeed financial, behavior. Get back to basics: Do you have a financial plan? Do you have savings? Do you have a project account set aside for emergencies? Are you spending less than you make? Are your investments diversified?

If all these boxes are checked, good investors will look at moments like these as opportunities. Asset prices have declined, allowing us to purchase some of the best companies in the world at discounts unimaginable only 30 days ago.


A Note to Clients on Virus Volatility

As I’m sure many of you are aware, this past week has been a difficult one for investors. The broad market indices have seen swift and dramatic drops, leaving many scared, confused, and upset.

Make no mistake; it is moments like these that define all of us as investors. Fear is an emotion, and one that can quickly snowball into an all-out panic. We’ve often said your behavior as an investor will ultimately have a far greater effect on your outcome than when or how you are invested. This is one such moment.

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Improving Investor Behavior – Campbell’s Soup & Rising Income


This article originally appeared in the Denver Post, February 16th, 2020.

Cold winter weather means it is soup season here in Colorado, and none feel more familiar than Campbell’s Tomato Soup. Just the name conjures a familiar aroma, a warmth in your chest.

Campbell’s feels familiar because it’s been an American icon for more than a century. Introduced in 1898, Campbell’s tomato soup is an excellent benchmark for understanding the impact of the persistent enemy of all investors: inflation. For more than 100 years, the size hasn’t changed, but the price sure has. About 45 years ago, in 1974, the soup cost about $0.12 per can. Today, it retails for about $0.87 per can. That points to an average inflation rate of 4.3 percent.

Forty-five years may sound like a long time, but that’s about the length of a typical retirement. Read more


PRESS RELEASE: Steve Booren Recognized in Forbes as a 2020 Top Wealth Advisor in Colorado

DENVER, Colo. — January 30, 2020 – Steve Booren of Prosperion Financial Advisors was recently ranked No. 26 in Colorado in the 2020 Best-In-State Wealth Advisors list published by Forbes.

According to Forbes, the annual list spotlights the nation’s top-performing advisors, evaluated based on a methodology developed by SHOOK Research. Advisors are also evaluated based on personal interviews, industry experience and revenue trends, among other criteria.

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Improving Investor Behavior – A Good Dose of Vitamin A


This article originally appeared in the Denver Post, January 19th, 2020.

The start of the year brings a renewed interest in finance for many people. It’s only natural: fresh starts, new beginnings, and helpful habits all come together to create a positive outlook on a clean slate. May I also recommend taking a megadose of what I call Vitamin A(ttitude)? Human nature has a tough time storing this vital mineral, and I think we all need a regular dose every day. Read more

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The Decade in Review

As financial advisors we’re constantly advocating for investors to maintain a long-term view. We consider it to be fundamental, not only as an example of good investor behavior, but as a way of minimizing the emotional toll of “riding the rollercoaster”.

But what does it mean to have a long-term perspective? How long is long enough?


Improving Investor Behavior – The World’s Worst Market Timer


This article originally appeared in the Denver Post, December 15th, 2019.

Do you ever feel “the curse” of investing at precisely the wrong point? Like you invested too late, at the wrong time, or maybe you’re just unlucky? Let me introduce you to Bob – the World’s Worst Market Timer.

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Outlook 2020: Bringing Markets Into Focus

Hindsight is 20/20, but finding clarity in future uncertainty can be fuzzy.

AT LPL RESEARCH, as we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch, including progress on U.S.-China trade discussions, an encouraging outlook from corporate America, and continued strength in consumer spending.

Trade risk, slower global growth, and the impeachment inquiry have garnered a lot of the headlines recently, but behind the scenes the U.S. economy has remained resilient. Economic data has been meeting lowered expectations, indicating an expansion that is still enduring. Most recently, third quarter economic growth was consistent with the long-term trend of this current economic expansion, which is now more than 10 years old.

We expect the U.S. economy to continue to grow in 2020 and support gains for stocks, although we are increasingly mindful of our position in the business cycle. At some point in the future, this record-long expansion will come to a close, leaving investors wondering what’s next. Against this backdrop, questions about the next potential recession and the 2020 U.S. presidential election continue to be top of mind for many investors. While we can’t see into the future, one thing we can predict is that uncertainty in the markets is here to stay. And we are here to help. We offer our Outlook 2020, your guide to preparing for this dynamic—and uncertain—market environment.

Read more about our forecasts and key themes in the full publication.

Improving Investor Behavior: Investing time now will pay dividends later


This article originally appeared in the Denver Post, November 17th, 2019.

The average American spends more than 85 hours per month watching TV. The same person will likely spend about 265 hours sleeping and 228 hours working. Know how much time they’ll spend working on their finances? About 1.8 minutes, (yes, that works out to 96 seconds) per day.

It seems crazy to me that people will spend an hour on Yelp trying to find the perfect taco bar for dinner, but will invest thousands of dollars based on a 30-second spot on the Mad Money TV show. Read more