How To Retire: Let History Repeat Itself

Summary

• You might be experiencing stress and anxiety during the coronavirus pandemic and all that it entails.
• These are normal psychological and physiological responses to trauma.
• For investors, particularly those concerned with their retirement portfolios, it’s all about how to respond to this trauma during and after the pandemic.
• While we have to consider whether stock market history will repeat itself, we must consider it rationally, not obsessively.
• Remember, you planned for this.
• Looking for a helping hand in the market? Members of The REIT Forum get exclusive ideas and guidance to navigate any climate. Get started today »

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During downturns, bear markets, and market crashes, we tend to obsess over the same question:

Is this one different?

Is this one different from all the other downturns, bear markets, and market crashes? Downturns, bear markets, and market crashes were all triggered by some type of event, be it acute or the result of a series of unfortunate, related events. So maybe the question isn’t whether this downturn, bear market, or market crash is different. Instead, should we be asking if the event or events leading to panic in the stock market are different than previous triggers. Maybe it’s a mix of both. And that uncertainty is actually welcome as it pertains to our discussion, because investors must reflect on both questions in order to figure out how to proceed.

Nobody knows for sure if the stock market will not only recover, but soar to new heights as it has after every other calamity. We have virtually no control over this outcome; however, we do have control over how we respond.

Recognize Your Anxiety

First, recognize, and even embrace, your anxiety. But most of all, understand it. We’re in the middle of a situation where we all lack control. Even when governments lift stay-at-some orders, anxiety, for many people, will persist. A natural response to events out of your control and the resulting anxiety is to find something you can (or think you can) control. If you can exercise control over something in your life or your surroundings, you can help alleviate the more global feelings of anxiety. That’s how the thought process of an anxious person often works.

So your anxiety is normal. And your response to it is textbook. You might not think you’re anxious, but if you’re trying to find answers to the above-mentioned questions, anxiety or some form of emotional distress most likely, at the very least, tinges the dialogue you’re having with yourself, with your friends, and in the comments section. This is also normal. Just don’t let it cloud your better judgment. That’s what anxiety does; it clouds the brain and blocks the path to calm, cool, and rational thinking.

Coping with anxiety is a unique struggle in these troubling times. Image source

Consider this from a recent New York Times article (paid registration might be required):

“We are having to process a lot more than we normally do, all at once,” said Lisa Olivera, a marriage and family therapist based in Berkeley, Calif. “What we are experiencing could be considered a collective trauma...

On the upside (if there’s one to find in all this), feeling stressed right now is a sign that your brain is working properly.

“One thing the human brain is incredibly good at is finding stuff to worry about, and when it does, it activates the ‘fight or flight’ threat response systems that have been part of our physiology for millions of years,” said Dean Burnett, a U.K.-based neuroscientist...

“Being stressed because there’s a pandemic and lockdown that’s completely upended your normal way of life is a very logical and possibly useful reaction,” Burnett said. “The extra vigilance and awareness that comes from the fight or flight response is relevant here, as we try to get through this and keep ourselves safe.”

But when that fight or flight response is continually activated by ongoing threats we can’t control, it can lead to mental and physical symptoms that make it a lot harder to get through the day.

Adrenaline Response

Government officials often refer to the situation we’re in as "wartime" and their mitigations as a “wartime response.” If you’re having an anxiety response, it triggers adrenaline. The adrenaline response could actually help you, as it can, when checked, improve focus and information processing. It can also contribute to your ability to circle the wagons and treat any havoc coronavirus caused in your portfolio as an “act of war.” You pull out all the stops and right yourself in the fight to save or at least better situate your future.

Bottom line - where you fall on the spectrum of emotional responses can vary widely from the person standing six feet away from you. But it’s certain we’re all experiencing some degree of anxiety and/or uncertainty. It’s how you respond to these natural psychological and physiological factors that matter much more than their very wholly expected manifestation.

Your Retirement Investing Response

Investors must remain cool, calm, and collected. If anxiety exists, we must harness and direct it in the most positive way possible. Remember why we advocate a defensive style of retirement investing. Because, as is the case with our friends Ted and Mary, we conceive our retirement plans the way we do with good reason.

We don’t do what we do simply to be part of a club. As cool as it is to be part of the Seeking Alpha community that has formed around the various components of retirement investing, that’s not why we subscribe to a particular style. We don’t do it simply to ensure we’ll have X dollars in our accounts at the ripe age we set for retirement. That’s certainly a major reason why we do what we do, but when you think about it, it’s not at the raw beating heart of why we do what we do. There are any number of other investment approaches we could advocate and methodically follow to get us to our desired number.

We do what we do, primarily, to provide peace of mind in situations just like the one we’re experiencing now. So, as you tackle the ultimately unanswerable question - "Is this one different?" - remember that if you preside over a well-constructed portfolio of income-producing stocks, the answer to that question is less important. It’s the investor not generating any or close to enough income in his or her portfolio that has to worry about the staying power of rallies amid extreme uncertainty. Not the tried and true defensive-minded income investor.

Simply put, you planned for this.

If you didn’t situate yourself to ride out this storm in relative comfort, then you still have the opportunity to act. But act rationally, not obsessively. Determine how you’re going to have access to enough cash to get through an unexpected emergency, alongside your portfolio of income producers. That should see you through the rough times. Then you can watch other investors panic without feeling as much fear yourself.

Our Techniques

Throughout this pandemic, we've continued to follow our same strategy. We avoid equity REITs with too much leverage because it creates risk. We emphasize using preferred shares, which tend to provide more stable income and usually have more stable prices. Granted, preferred share prices had unusually high volatility in March and April. We took opportunities to swap between very similar preferred shares when the market failed at pricing them. We made a few trades in equity REITs by purchasing in late March and early April, capturing dramatic discounts to book value.

While other investors were busy screaming that the sky was falling, we kept thinking rationally and focused on doing what we do best. We found bargains amid the wreckage. We placed a few trades as needed to reposition ourselves into the most attractive opportunities. We took a few losses, but we were simply changing from one share to another. Overall, we ended up dramatically ahead of the REIT indexes because we were carefully picking our opportunities and refusing to give in to the panic we saw around us. We're only down very slightly year to date as of early June. That's pretty good given the carnage in our sector. We don't mind a bit of carnage though. The plunging share prices created huge discounts to book value. We want to pick opportunities when discounts are huge. This is still a great time to be investing in the sector.

If you want to learn more about our techniques, hit the "Follow" button.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

No stocks were mentioned by name, so we have no specific tickers to disclose. However, we have positions in many equity REITs,a small number of mortgage REITs, and many of the preferred shares from mortgage REITs.