When does your alarm clock go off?
Henry David Thoreau once wrote, “The mass of men lead lives of quiet desperation.” He might update that today to read, “The mass of men are asleep.” In the early 19th century most folks had to fight just to feed and clothe themselves and keep a roof over their heads. Today, life isn’t so grim. We don’t struggle with starvation any more. Indeed, many of our diseases are ones of overabundance, not scarcity.
So many just doze through life, waking up only for major events, like the birth of a child, or the Super Bowl. But some have an alarm clock that gets them up, alerting them to the issues of the day—political, economic, or financial factors that affect their lives. Bill Gross writes that most active investors have such an alarm that stimulates their investment decisions.
Only, it doesn’t go off at the same time for everyone. Say you’re supposed to get up at 6 am. Some investors don’t even hear the alarm until 10 or 11 o’clock. The day’s half over, and it’s way too late to make any changes. If you’re worried about the dot-com bubble, it’s already burst.
Other folks wake up way too early. Their alarm is set for 2 or 3 am. John Bogle of Vanguard warned about overvaluation in ’97, ’98. ’99, and 2000. While those folks were ready for the crash, being too early can take its toll. Sometimes, by telling you to take refuge in safe investments, a too-early alarm clock can be just as bad as a late one. Better to hit the snooze button a few times.
The key is to know what kind of investor you are—to know yourself. No one can time the market perfectly. It isn’t that simple. But the point is to understand your own personality well enough to avoid these pitfalls. Different stages in the market cycle invoke different emotions that will have a huge impact if we let them run our lives.
No one can control the market. But we can control ourselves. The better we understand ourselves, the better we can act—and not just react—when the world wakes us up.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!