Don’t Let Market Swings Rattle You

Foreword from ShareInvestor

This article “Don’t Let Market Swings Rattle You” by Goh Eng Yeow was first published in TheStraitsTimes on 16 Nov 2014 and is reproduced in this blog in its entirety.

Keep calm and ride it out instead of reacting rashly every time financial calamity hits

My friends have now become used to the wild share market swings that mysteriously occur every time I take a vacation of two weeks or longer.

The latest example of this occurred last month when the stock market suffered a convulsion as I set off to Japan to enjoy autumn, when trees took on different shades of gorgeous yellow, orange and red.

What I did not bargain for was being caught in a sudden snow storm high up in the mountains at a place called Murodo in western Japan, which features a picturesque lake on top of a still-active volcano.

That night, as the blizzard winds blew outside my hotel and covered the slopes of the nearby Mount Tateyama with snow, I was bemused to get a group-chat message from former colleague Jonathan Kwok: “The pattern continues of market falling when EY is overseas. Dow Jones is down 350 points.”

A coincidence indeed, I thought, to find two very different storms occurring at the same time – one whipped up by the powerful forces of nature, and the other by the capriciousness of the financial markets.

But while my friends were glued to their screens watching the market and agonising over the paper losses in their stock portfolios, I didn’t even bother to check how Wall Street or our local stock market was performing.

Somehow, in the mountain fastness of Murodo, where the crisp cold air was so still that even the drop of a pin would reverberate with a big echo, it was hard to conjure up the images of traders screaming prices on Wall Street.

Perhaps, it was just as well that I did nothing, except to carry on enjoying some of the most spectacular autumn scenes I have witnessed in years.

When I returned to the office, the mayhem appeared to have blown over. United States stock prices had swung back to record highs again after plummeting almost 10 per cent in value at one point.

I had missed the outpouring of anguish and the considerable navel gazing among traders and analysts as stock prices plunged.

But it turned out that all those worries were unnecessary – and I had been better off trekking the numerous trails in the beautiful forests of western and northern Japan, enjoying the mostly warm autumn weather and the excellent meals whipped up at the different ryokans – or Japanese inns – where I stayed.

I recall that six years ago, as stock prices plunged to their lowest levels in over a decade following the collapse of US investment bank Lehman Brothers, market pundits were writing about a lost decade for the stock market.

That failed to pan out too, with stock prices making a spectacular V-shaped recovery in the following months and rallying year upon year after that.

But staying unconnected and remaining oblivious to such major market upheavals takes considerable courage.

It is also becoming increasingly difficult to stay detached. Even high up in the mountains in Japan, the modern world intruded. Virtually every hotel I stayed in provided its guests with free Wi-Fi.

While sitting still and doing nothing may be the best course of action, it is difficult to resist the impulse to trade, as we follow every twist and turn of the market on the financial apps now available on our smartphones.

Staying connected may, in fact, be counter-productive. And when the market bleeds, it can actually hurt as we feel awful when our investments go down in value.

This is because of the way we are wired; we are likely to feel the pain of loss on our investments far more acutely than any joy we get from an investment gain. That irrationality can, in turn, cause us to make rash investment decisions that we may regret later.

Watching financial networks such as CNBC can be downright entertaining, but we have to be careful about reacting to every report they spin to viewers.

As Mr Jack Bogle, the nonagenarian founder of the giant US-based fund management firm Vanguard Group, once observed, investors should try not to succumb to the urge to “don’t just stand there, and do something” each time the airwaves shriek about the latest financial calamity to hit the market.

Instead, he believed that investors are better served by the diametrical advice: “Don’t do something. Just stand there.”

In doing so, they may end up becoming more successful investors. They will be happier ones too.