Reacting to Crisis
Taking a step back from the current state of affairs...
Dear Reader,
Considering what’s going on in the world right now it may be beneficial to abstain from the endless news stream and digest the current state of affairs.
Those who are around my age never experienced a true bear market nor a recession as a professional or young adult. Even more so, no one reading this has ever come close to experiencing a pandemic that has hit so close to home. While we hope and pray for everyone’s health and safety we know that tough times are ahead. There are a couple of ways to react to the amalgamation of negativity surrounding us. One option is we let ourselves get overwhelmed by each headline and alert and allow our minds to get overcrowded by worst-case scenarios. The alternative is that we could acknowledge and feel for those going through hardships but as individuals remain steadfast in our own emotions and focus our daily motions on remaining as disciplined as ever.
In Jewish philosophy as well as Stoicism, there is a concept of admittance to our lack of control. Most events that happen in this world are beyond our limited reach. What is in our control is how we react. Will we be swamped by sadness and despair or stick to our values and try to maximize our utility in times of need? The latter could allow us to be there for others as being mentally strong is often an asset in times of hardship. It allows us the capacity to help those who are struggling. Realizing this foundational principle keeps us from reacting too emotionally.
We should judge ourselves not by the situation we are put in, but how we behave in our respective positions. For now, this may mean expending more effort on being loving to those close to us or putting on a smile, although the circumstances now require most of us to be stuck at home. It could mean making an effort to reach out to people we know who may not be surrounded by as many family members or friends during these times of isolation. When we are rock-solid in how we react to uncontrollable externalities we are able to turn our attention outwards to allay the unfortunate circumstances we find many people in today.
Turning to investing, this principle is extremely transferrable as acting based on logic and not emotion is what allows investors to profit in times of panic. When the consensus opinion has the masses running off a cliff that is the ideal time to find bargains and oversold opportunities. When there’s a general aura of hopelessness, the negative sentiment is most likely priced in and that is the time to pounce.
The speed at which we’ve seen major indices decline is unprecedented dating back to the last 100+ years. We’ve also never had a bear market brought upon by a virus nor a demand shock at the scale of what we’ll see over the next few quarters. Taking a long-term time horizon into account and the humble recognition that it’s futile to predict how this plays out day by day over then next year, it’s important to understand what you own. Having a basis of valuation for your positions allows you to react to the proverbial Mr. Market in ways that serve you, a long-term business owner, and not the other way around. Drawdowns can only knock you out of the game if you’re a long/short investor using leverage or have client capital looking to dessert you. If you check neither of those boxes you could view the current environment as a chance to own quality businesses for a solid price. As in markets and life don’t let the external environment overly shape your thinking.
As there’s a good chance tougher times are ahead let’s remember what is and isn’t in our control. Times like these also remind us of our mortality which should provide some motivation to be extra grateful for those close to us and time to reorient ourselves to our broader life goals.
“Very little is needed to make a happy life; it is all within yourself, in your way of thinking.”
Marcus Aurelius
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Disclaimer: The views expressed above are strictly those of the author. The Content is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice.