Lessons I'm (Re)Learning From the Current Crisis

While this is part of the "Lessons I Learned" category of this blog, this crisis is ongoing so I thought I would do this one in the midst of the event. I have spent the last three weeks reaching out to clients offering perspective, advice, portfolio updates and planning opportunities. Now I'll take a pause to review the big picture and hopefully provide some therapy along the way. Note: I'm coming at this primarily from a financial standpoint.

It's Different This Time

Let's deal with this theme right away.  These are the four hardest words to deal with in a time of great uncertainty. Yes, it's different this time... and yet it's the same. I want to address this directly and frankly.

This event is different, at least in the last 100 years.  My Mom (age 87), worked as a registered nurse, with some of that time in public health. In all her years, she has no frame of reference for this. This is unprecedented. Unprecedented means uncertain, and that means we don't know the path out of here. That is very unsettling. So yes, this time is different.  

But, think of events that came before this.  

• When we waited in lines for gas in 1973-74, and had no strategic oil reserve, that was unprecedented and we had no idea what was next.
• When airliners were flown into buildings on 9/11, and the financial markets closed for four days straight, that was unprecedented and we had no idea what was next.
• When Lehman Brothers went bankrupt in 2008 amid a mortgage crisis, leading financial markets to freeze up, that was unprecedented and we had no idea what was next.

You can add several wars in the last century to the list. You get the idea. When we're in the middle, it's hard to know when and how it ends because it's unknowable. The actual events themselves are different which increases our anxiety since it leaves us without an exact pattern to follow.

But you do see a pattern emerge. While the events present us with different circumstances, they present us with the same psychology. Fear of the unknown, whatever the circumstances, makes the survival part of our brain (the amygdala) do weird stuff. God blessed us with amazing minds. He gave us fear to protect us from harm. It helps us react very quickly to harmful things such as hot surfaces, dangerous animals, and other potentially hurtful situations. But it is less helpful for abstract dangers that are not possible to calculate, leading us to do weird or even dumb things.

If you doubt this at all, I give you recent Exhibit A, buying enough toilet paper to stretch to the moon and back. Having enough for the next few weeks is great. Having enough for the next 3 years is not rational. This same fear response is what leads us to want to sell stocks when they're plunging, when instead we should hold them and/or buy more if we have the resources to do so. We love to shop. Well actually, I hate shopping, but I love a bargain. When Best Buy marks down the TV we've been eyeing by a 30% discount, we rejoice and get out our wallets. When stocks are marked down 30%, we have the opposite reaction. The only difference between the two is the latter contains the fear response raging in our minds that accompanies a crisis.  And it is a very real difference. And I am not personally immune to it and certainly don't enjoy it. Therefore, it must be recognized, acknowledged and managed.

What I Believe is Revealed in a Crisis

I've had 10+ years since the last crisis to contemplate what I believe about the economy, the markets and crises and to rehearse how to better lead clients in a difficult time. Here's a summary:

• We will get through this. When I'm asked the "What if it's different this time" question, my response is there are are only two outcomes. 1 - the world ends and your financial affairs don't matter or 2 - the crisis ends, things heal and we get on about our lives, in which case making good financial (and other) decisions matters.
• Assuming this isn't the end of time, things will get better. None of us knows when or how, and we should never be overconfident we do know when or how, but it does. It has only happened that way every time.
• I believe things get better because God has created us to be innovative problem solvers who strive to make things better for ourselves.
• Following a disciplined rules-based strategy, whether it involves adding funds, re-balancing or whatever means you will not be completely right and you will not be completely wrong... and that's okay. Doing anything else is guessing, and that's not rational (nice way of saying insanity).
• Investing is fairly simple, but it is not easy.
• Advising/coaching/counseling clients to do the opposite of what our brains are telling us is the greatest value a financial advisor provides.

Never Stop Planning

The above thoughts are more investment centered, and that's certainly where there's a lot of attention at the moment. In a recent note to clients, I invoked the phrase "never let a good crisis go to waste" but it was in the negative context of warning against the inevitable scammers who will try to take advantage of a bad situation. Here, I'm using it in the positive sense. Undesirable as bear markets are, they do present planning opportunities. We have done Roth conversions, tax loss harvesting, re-positioned strategies (where capital gains had been a barrier to such changes before the decline), and of course are re-balancing accounts as warranted. 

Basic financial planning can never be ignored, especially in times of crisis. If there is ever a time to follow a plan, now is it. I'm sure there is more to come in the days ahead as we become even more restricted in our activities. I hope to share more thoughts as things progress. For now, please be safe and let's flatten the curve.

Any information presented here is general in nature, believed to be reliable as of the date published and is not intended to be and should not be taken as legal, tax, investment or individual financial planning advice. Competent, licensed professionals should be consulted when implementing any kind of financial, estate, tax or investment strategy.