Many investors bailed out in the crash of 2008, and missed out on the many great years of investing that followed. I am already seeing investors who bailed out during the current crisis and are perhaps also afraid to get back in.
One of the most important facets of investing is understanding human nature. That nature creates opportunities for those who study it and risks for those who do not. One quality of human nature is the ability to adapt. I experienced this personally many years ago when I attended a family reunion. The organizer had scheduled us all to stay in a motel that did not look in real life anything like it looked in the sales brochure.
As we entered our room and noticed the worn carpet, the odd smell and the stained fixtures, one of our daughters said, “Dad, can’t we just go find a Hilton?” Given the logistics involved I encouraged the kids to just try and make the best of it.
On the last day of our vacation we returned to the motel and sat around laughing and reminiscing about the wonderful reunion. It was then I realized that none of us even noticed the smelly old room anymore. It was a great lesson in the ability of humans to adapt to their environment.
Our amazing adaptability kicks in when a crisis hits. Immediately we fear and our “fight or flight” mechanism kicks in. Maybe I will call it the “Find me a Hilton” response. This can lead to immediate, drastic action. In time, as we get more comfortable with the crisis we slowly began to accept the new risk as a normal part of life.
Consider the response to the virus in early March. Initially people isolated themselves to keep their families safe. Roads were largely empty, stores were closed, and life quickly ground to a halt. I remember looking out my picture window at the vacant city and wondering when things would be normal again. As time went by, people began emerging from their homes, going for walks and visiting the stores etc.. Now it is early July and if I go to a store in my area I may see a few wearing masks but for the most part people seem to be returning to a fairly normal life. By appearances one would think the crisis is mostly over. Yet the reality is, the virus that began this crisis is still actively with us. All that has really changed is we have adapted to it, and begun to accept the new risk.
If investors understood this concept, they would be slower to bail on a crisis, and more confident as they invest in the future. Whether the virus is with us or not, it is my experience that people will adapt and life will normalize. That is the way humans are. Recognizing that quality and looking for those depressed industries that are most likely to recover, as we all adapt, may be today’s great investing opportunity.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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