When I was young my family would often watch Frank Capra’s “It’s a Wonderful Life” at Christmas time. Many years have passed since the last time I saw the movie. But this year, with it showing free on Amazon Prime, I let the kids stay up late one night and we watched this Christmas classic, popcorn and all.
As the story unfolded, I found myself seeing George Bailey differently than I ever have. In many ways I saw myself in him, and I saw many of you. Trying to do the right thing. Trying to meet the demands and expectations of life. Trying to run a small business. Trying to raise a family. Trying to balance the expectations and dreams of a life of adventure and charm with the realities and humdrum of the daily grind. As the pressures mount, George breaks down and loses it. With this viewing, instead of being amused by George, I felt compassion for him.
I love this story for the rich messages of love, kindness, hope and forgiveness. And I love it for how this movie beautifully teaches the value of a human life, even the “worth of a soul.”
Clearly George is the star of the show. But there is another lesson to be learned that is applicable today by Mr. Henry F. Potter, the old miser and George’s arch enemy. Mr. Potter is mean, heartless and sour. He is the embodiment of greed and the antithesis of the Christmas spirit. He gives a great example of how to end up unhappy and alone.
But he is a very wealthy man. And what if, with his wealth, he were good? We don’t identify with Mr. Potter’s motives or his character, but that doesn’t mean we won’t learn from him.
In one scene George and Potter are arguing about what happened during the market crash of 1929 and how Mr. Potter “stole everything,” during this time. During this scene, Mr. Potter says these magical words: “I’m the only one who kept my head.”
And he did. As people were dumping stocks and selling everything they owned at fire sale prices and making runs on the bank, Potter was buying.
As I write this, the market is down 16.6% from its high on September 20, 2018, exactly three months ago. As the market falls, the worrying starts for many. This may be a time of testing for you—will you “keep your head?” Or will you line up with the many who don’t and sell what you have at sale prices?
What you do is your choice; our advice is to stay the course with the plan you have. Here are some of the reasons why:
- In my life I have witnessed many, many people squander wealth and bring upon themselves financial ruin through a multitude of poor choices. I have never, not even once, seen a person lose their way by following a well-designed financial plan with discipline.
- Almost everyone reading this will invest much, much more between now and when you retire compared to what you’ve already invested. As such, a market crash would actually help you buy more “on sale” (stocks are on a 16.6% sale since the price 3 months ago).
- If the first point doesn’t apply to you, and you’re nearing the end, remember that your distribution plan will occur over the rest of your life, and these events are baked into the plan and your probability of success. You don’t write a check for retirement on the day you retire. If you look at any 30+ year time horizon, what difference does the latest zig or zag make?
- Don’t forget what you actually have—ownership in real companies. These companies, in the aggregate, aren’t disappearing. And if you want to “touch them,” go to Costco, or go buy gas, and touch away, kick the bricks, and perhaps even boss a few people around like Potter would.
- Market price ONLY matters if you’re buying or selling. If you’re buying a new TV, you wait until Black Friday (or right before the Super Bowl). If you’re buying groceries, a sale is your friend. But most investors get this wrong on stocks; if you’re buying, wouldn’t you hope for a sale there too?
- The phrase “the market is falling” is misleading, as it implies that the market will continue to fall in the future. The person who says this is thus implying that he/she can see the future. I’m not saying that the market won’t continue to fall (if it does, consider yourself lucky, see #4). What I am saying is that when the market turns, it will race off like a locomotive but without waiting for passengers to get back on.
- Regardless of what the market price does, those who own stock are always recipients of the quarterly dividends paid by most companies and the earnings made by all companies (even when“retained” to grow the company).
- If you just can’t take it and decide to get out, remember that you’ll have to time the market right not once, but twice. You need to know the precise time to get out and the precise time to get back in.
With this volatility, others become less enchanted with “the market,” and may be tempted to invest in other ventures that are less “crazy.” But remember, any asset in the history of the world—from Christmas trees to baseball cards to shipping boats—has its own market and fluctuating prices. But what these pseudo safe haven assets don’t have is often a live ticker symbol and they aren’t the focus of the national news.
As a reminder, our office will be closed until after the New Year, opening again on January 2, 2019.
Until then, don’t forget to channel your inner Mr. Potter and keep your head. And please have a very Merry Christmas.