Happy new year, everybody! The start of a new year generally brings a certain excitement and joyful anticipation of the future - generally, but not always, and for that reason, I thought I'd greet this new year with a bit of gloom. (Don't worry, I'm not actually gloomy at all. I'm doing this as a sort of public service announcement, as you shall see.)
I see a room full of financial professionals - brokers, traders, bankers and financial advisors - and they're all miserable. Their job is to make money, but they're losing it, and losing big. Their jobs are very much on the line right now, yet while they still have them, their interactions with bosses, co-workers, and clients are less than pleasant, raising their work-related stress. The proximate cause of their despair is markets that keep on sinking on bottomless bad news.
The above vision is not a hallucination. It is exactly what I saw as the new year got going in 2008 in various locales, where I spoke before such groups. The pained expressions are etched in my mind, the searching questions still ringing in my ears.
Why am I bringing this up? Is it a prediction of some kind? How exactly is this a public service announcement?
My answer quite simply is that when everything about us is sunshine and roses, it is precisely then that we need to keep the darkness and despair uppermost in our minds. The best answer I might have given folks during those dark days of 2008 is that "this too shall pass." Far too many of those financial professionals couldn't keep it together. Those who did (I'm guessing) were those who could imagine a better day.
Imagination doesn't get the respect it deserves - to some, it is the province of the day dreamer resting his head on a pile of books while the teacher drones on. Though it be not expedient, don't think it unessential, however. Our investing activity is part of a journey we're taking. Some are more successful than others in the practical undertaking of accumulating wealth, yet many "successful" investors are bested by those who are clear-eyed about the numerous destinations of that journey, including the Land of Losses. It's coming to a market near you, whenever that may be.
So, what can we do while we're imagining the seemingly unimaginable - harsh losses - even while markets continue to reward investors? Wharton professor Jeremy Siegel had made numerous observations in the thick of the decade-ago crisis, among them that Wall Street began acting as though markets move only in one direction and another that corporations were more apt to take risks in our times than they were during the Great Depression, when partnerships were more common, and hence executives' own wealth was directly on the line.
Those ideas seem particularly apt today. The market has been marching fairly steadily upward, so like it or not, we are conditioned to that backdrop, which tends to weaken our awareness of risk. And if regulators failed to pay sufficient attention to risks in the previous crisis, and will again in the next one, we need to make sure that we at least are regulating our own level of risk taking - above all now, when things are going so great. Now is precisely the time to recall how dismal things can be.
Please share your thoughts on this in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha.
- Roger Nusbaum warns of continuing gross distortions in the market.
- Adam Hoffman, CFA: What's better for wealthy investors, non-deductible IRAs or taxable accounts?
- Martin Lowy looks at how the new tax law changes the investment landscape.
- Jeff Miller weighs the new year's first data-heavy week.
- James Picerno reviews major asset class performance for December 2017.
- Nick Ronalds, CFA reviews "Money in the Great Recession," edited by Tim Congdon.
- For more content geared to FAs, visit the Financial Advisor Center.