My wife hates turbulence. If the plane is bouncing up and down she’s gripping the seat and giving me that look.
Before we fly together, I wander over to the website Turbulence Forecast to see if we should expect a rough ride. If the answer is yes, I tell my wife that there will be a few bumps along the way. I set her expectations for the flight.
Does that help? Yes. She’s expecting it, it’s not a surprise. Guess what the worst moment is to tell someone that turbulence is no big deal? When it’s actually happening. They’re scared and you saying “hey, relax, no big deal” is accomplishing nothing. You have to prepare them for it.
It’s no different for the stock market.
Let’s set some expectations so from this moment forward, you know what you face.
Based on the history of the stock market you should EXPECT a selloff of:
-5% Three times a year.
-10% Once a year
-20% Every few years
-50% A few times in your life
These are going to happen to you, they happened to every investor along the way.
We can’t avoid them because they are a lot like turbulence, they come out of nowhere. We can forecast it but that doesn’t mean we know exactly when it will occur.
Behavioral Finance tells us that you can broadly think of your happiness as just “Reality minus Expectations”. H = R-E. Said another way, are things going better for me than I thought or worse?
If you aren’t expecting these selloffs to happen you get upset, reality smacks you in the face and your happiness plummets.
If you are expecting them, like my wife expects the bumps, you can deal with it in a more rational way. Still scary but expected.
2022 has been awful, like severe turbulence over the Pacific Ocean at 3am. Have there been any other times like these? Yep, how about 2020, 2018, 2016, 2011, 2008, 2002, 2001, 1987, do you want me to keep going?
My friend, money isn’t free. You are not guaranteed stock market returns. In order to grow your wealth you have to pay a fee and that fee is fear, unease, and doubt like you are experiencing now.
Look, you don’t need to make amazing buy and sell decisions to do well here, you DON’T. You just have to not blow it in moments like these.
Here is a 100% ironclad guarantee from BullandBaird: There will be more recessions, selloffs, and bear markets in the future. They will happen, it’s inevitable.
You have to persevere, you have to get through them, because on the other side is landing at your destination.