Weekend Reading: Failing To Plan Is Planning To Fail

Print Friendly

Failing To Plan Is Planning To Fail

by Michael Lebowitz, CFA

There is a durable bit of market wisdom that states “volatility begets volatility.” The gist of the saying is that at times the market can be very calm producing little need for investors to worry. Other times sharp market movements produce anxiety that spreads among investors and tends to exaggerate market moves in both directions for a while.

The graph below shows the daily percentage change between intraday highs and lows. Plain to the eye one can see the period of unprecedented calm that prevailed in the markets throughout 2017 as well as the sudden bout of volatility that picked up in earnest in late January.

Sailors pay close attention to weather conditions at all times. Importantly, however, they need to be highly in tune with the warnings that Mother Nature presents. This doesn’t mean they must head to harbor immediately. It does mean however they must have a plan or two top of mind if the conditions continue to worsen.

Protecting your wealth is no different. When the markets get choppy, as they have been, we need to heed the message that conditions have changed. One should not sell everything and run to cash. However, it is imperative one has a strategies and actionable triggers in place in case the volatility continues.

Last weekend, Lance Roberts shared the following graph and commentary:

“Considering all those factors, I begin to layout the “possible” paths the market could take from here. I quickly ran into the problem of there being “too many” potential paths the market could take to make a legible chart for discussion purposes. However, the bulk of the paths took some form of the three I have listed below.”

No one knows where this market is going and if they tell you otherwise, they are lying. We simply remind you the market winds are picking up, it is time to put a plan in place. Fear and anxiety are the enemy of complacent and unprepared investors. Those emotions are the direct result of not having considered and planned for the unexpected. For the investor who exercises the prudence to strategize on the “what if” and keep a close eye on market conditions, the fear of others’ is his opportunity.

Consider this recent period of choppy seas a gift. The market is allowing you time to plan.

“Failing to plan is planning to fail” –Alan Lakein