Our Advice as Ukraine Crisis Becomes Reality

As alluded to in our Q4-2021 Client Letter, after a calm and steady rise in 2021, stock market volatility has returned with a vengeance in 2022.  Indeed, just when the coronavirus Omicron variant was rapidly fading into the rearview mirror and life was returning to normal, the Russian invasion of Ukraine moved from “scary, but probably won’t happen” to frightening reality.

Predictably, the headlines and talking heads are screaming the sky is falling and urging investors to “don’t just sit there, do something.”  Stocks have entered “correction” territory (10-20% decline) and there is more than a whiff of panic in the air.  We understand many are feeling scared and anxious.  It certainly doesn’t feel good to us, either.  Still, our primary task as your trusted advisor is to maintain a steady hand on the helm when the seas turn rough, as they are today.

Not only does fear and anxiety weaken our immune system (we physically become more susceptible to illness), it also wreaks havoc on our decision making. We all want to make thoughtful and deliberate decisions, but when we allow fear in, it takes over and may influence us to make decisions that feel right at the moment, but end up being detrimental over time.

Understanding the mind can help us maintain proper perspective, which is essential to good decision making.  Whenever uncertainty abounds, such as the present, the brain seeks to find some semblance of control – even if it is just an illusion of control.  And it wants to do something.  The irrational hoarding of toilet paper and other staples during the pandemic was evidence the brain is doing something to feel a sense of control.

This same desire for control can lead investors to want to make changes to their portfolio that is not in line with their plan.  We need to acknowledge there are things we can’t control and things we can.  Right now your greatest control is in the investment decisions you make, or choose not to make.  Rest assured; we are going to do something about this.  We are seeking opportunities among others’ fear for your long-term benefit.

The best way to combat fear is with facts and truth.  That can help you have a greater perspective on things and encourage wise decisions.  Here are a few facts:

1. The market may remain volatile and go down more.
2. Energy prices will likely soar even further on supply constraints.
3. As a result, inflation may get worse before it gets better.
4. War is ugly and this may last longer than we are expecting/hoping.

Now that you have the facts, do you really need to tune into the news to tell you this stuff over and over?  This is a good time to practice “strategic ignorance.”  Not all information is beneficial.

Perhaps the greatest question you can ask yourself right now is: Will this matter in five years?

In five years (and probably sooner), this crisis will have passed.  Do you want to look back and see yourself selling great companies at low prices just because of the uncertainty and fear today?  Or do we want to learn from 2008/2009 financial crisis and 2020 COVID Crash and seek opportunity to profit from others’ panic?  Russia’s invasion of Ukraine may not matter in five years, but the decisions you make this year will absolutely matter.

We’ve been through many significant market declines over the past 46 ½ years. While this invasion/war is new, surprises and economic shocks (like COVID two years ago) are not new to us.  The graph from Crandall-Pierce below shows 126 instances since 1896 when the world seemed like it was coming to an end.  We knew there would be a #127, but nobody knew what it would be.  Now we know.  No matter the cause of the shock, our response is always the same – we seek opportunity in others’ fear.

We also thought you might find useful/information this piece from Hartford Funds about “how to learn to worry less and love a market correction”.  The current correction is the 58^th for the S&P 500 since World War II.  Corrections are unpleasant, but a normal part of investing in stocks.  Only 15 of the prior 57 corrections eventually became a bear market (>20% decline).  Past performance is no guarantee of future results, but every one of the prior corrections/bear markets eventually ended and stocks recovered and moved to new highs.

Listen below to hear Mickey Kim featured on the Indianapolis Business Journal’s recent podcast discussing market volatility in 2022:

The opinions expressed in these articles are those of the author as of the date the article was published. These opinions have not been updated or supplemented and may not reflect the author’s views today. The information provided in these articles does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular stock or other investment.