How Much Fear Can You Take?
09/16/2011 1:06 am EST
It’s important for investors to find the strategies and risk level they’re comfortable with and stay absolutely consistent, or they could lose big, says Michael Yoshikami in this exclusive interview with MoneyShow.com.
Michael, you’re a money manager here in the Bay area. Your firm deals with a lot of private investors, high-net-worth people. People have been pretty nervous lately. What are people telling you and your firm?
Well, investors in general—not only our clients, but I think all investors—are very, very nervous of what they’re seeing. They’re seeing volatility that really is record breaking.
I mean we’ve seen moves in the market by hundreds of points a day on consecutive days in opposite directions, sometimes intra-day and I think it’s causing a tremendous amount of anxiety for investors and for many investors causing them to freeze and take no action, which we think is a mistake.
Now, isn’t there some legitimate basis for the fear? I think people are thinking about the flash crash last year, when suddenly the market evaporated, prices plummeted, and nobody, still to this day, really knows what caused it.
Let’s be clear that fear in itself is not a bad thing. It’s your reaction to that fear.
If the fear causes you to be paralyzed to take no action, to essentially stay in a place that really is not in your best interest, maybe is earning you no returns, maybe you’re in more volatile assets than you’re comfortable with, then that fear becomes problematic. That anxiety really becomes paralyzing.
Investors need to try to assess that fear, look more rationally what’s happening in the world, perhaps get advice to actually make those choices, and then take action, based on the environment that we find ourselves in today.
So, assuming the people take a step back, and maybe in a Zen-like way watch their fear or watch their emotion—control that, right, understand that. What do they do next, once they’re on solid ground?
Well, first of all they have to understand how much fear they can take. How much anxiety can you take? How much fluctuation can you take in a strategy?
There are many commentators that will say, now is the time, go out and buy stocks. They’re a great long-term value. Long-term doesn’t mean anything if a year from now the stock is down and you panic and sell.
So people have to make assessments. Investors have to make assessments of what they’re comfortable with and then invest based on that comfort level. And that comfort level has to do with your emotional makeup, as well as what goals you’re trying to achieve in the future.
So, you’re telling me that each client is different, and some clients, who would probably be their better interest to start buying things now at lower prices won’t do it, it’s a bad idea. Other clients should do it.
I think that’s absolutely the case. I mean, it’s all about survivability, right? Because in the end, if you put together a great strategy, but you simply can’t take the anxiety that comes with that strategy, you will abandon that strategy probably at the worst possible time, and that’s the last thing you want to do.
Well, we saw that in 2008 and 2009. People basically sold at the bottom, said, "Get me out, I can’t take it anymore." I’m sure in those very words, right?
You know, many people got back into the market when? In 2010, when the market had actually rallied. You may say gee that is something peculiar in 2008.
If you go back and look at the history of the markets, that’s when people tend to sell, is when things are very difficult, and they buy after the market has rallied and they’ve missed a 30% or 40% or 50% increase.
Make sure you’re positioned correctly to the point where you won’t freak out, panic and sell at the wrong time and stay the course.