When The News Gets Crazy, Focus on Investments Principles

In early March we saw runs on two banks and their subsequent collapse. One of them was the 16^th largest bank in the United States. The government has come in to insure all deposits at these banks above the FDIC insurance limit of $250,000.

During times like these we can feel a sense of panic or a loss of control. This emotion makes us want to act, obviously there is something we should be doing when something this cataclysmic has happened…right?

Instead of reacting, it might be best to tune out the news for a second and refer back to our investment principles.

Uncertainty is the rule, not the exception.

Let’s think back to the crisis’s we’ve faced just since 1997. 2 presidents impeached, 9/11, U.S. goes to war in Middle East, global financial crisis of 07-09 in which one of the most respected financial institutions, Bear Stearns, collapsed, Greece defaults on its debt, global pandemic kills over 1 million people. This time always feels different, but history shows us these sorts of events are all too common.

Market timing doesn’t work.

One of the most enticing impulses in investing…what if I just sold now and stopped the pain and then got back in the market once it’s bottomed? Look at the list of crises I just listed above, were those possible to predict? Anyone who claims they did predict them is either lucky or a liar. The data shows that those who attempt to time the market are hurt over the long run with lower returns.

Diversification is your friend.

This is the idea that owning many different companies, in many different industries, from many different countries allows you to reduce the risks of any one company, industry, or country struggling. Take the Russell 3000, a commonly followed market index that represents the 3000 largest US traded stocks. Silicon Valley Bank made up 0.04% of the index. So, while an event like this may sting the diversified investor, it won’t kill them.

Focus on progress.

Being a long-term investor is having the understanding that although we experience big painful events along the way, modern history has been a slow but constant improvement of the human condition. Life expectancy, poverty, education, death from disease, transportation, communication, technology have all slowly improved despite the incessant stream of crises along the way. Just for a moment imagine for a moment you were a king or queen in the year 1850 and compare their life to yours. You have a device in your pocket that would seem like science fiction. Your home has sophisticated air conditioning and heating systems. You have a mode of personal transport that gives you the freedom to go anywhere you want at speeds of 80 mph. Scary diseases like Measles and Smallpox are all but forgotten. Airplanes whisk us away to faraway places that would have taken months to get to. Electricity lights up the night and powers machines that do the work of a team of servants. This is an extreme example, but hopefully it brings your attention to the immense progress we’ve made and continue to make.

One thing I can assure you is that these sorts of destabilizing world events will continue to happen. Tune out the news if you can and focus on the long-term. By investing in broadly diversified portfolios, you’re betting the great companies of the world, on average, will continue to solve the problems in front of them and innovate for a better future.