When you know the ending… 4/6/2020
After weeks of watching virus news and awful stock market reports every night, I turned on ESPN at the suggestion of my dad the other night. I hadn’t turned on a sports channel or checked a sports app for a month since the NBA canceled their season, the NCAA tourney followed and preseason baseball gave in. It was too frustrating and sad to turn on the TV and not see a live game.
But dad said it was game 7 of the 2016 NBA championship being replayed, the game that no Ohio sports fan will forget. You know, the game where the Cavs came back from a 3-1 deficit and beat Golden State on their home floor. The game where LeBron had that unbelievable chase down block and Kyrie made the winning three point shot in the last 2 minutes. The game where seemingly invincible Golden State, who set the NBA’s regular season 73-9 winning record, rolled over to the underdog Cavs. OK I thought, I know how this one ends, I can rewatch that.
After the replay was over and I was reliving my happy memories of the Cavs win, calls with friends, going to the parade in downtown Cleveland with my family I started to think about where we are today. I thought about how not knowing what the future holds or how the current situation ends is what makes it so hard to deal with.
It’s easy to look back in hindsight when an event is passed and have a clear view of what happened. At the time that game 7 was going on I’ll admit I didn’t think there was a snowball’s chance the Cavs would win. No team had ever come back from a 3-1 deficit and won game 7. Cleveland had lost to Golden State the previous year. We had the “curse”, no Cleveland team had won a title in 50+ years. The Cavs had tied the series at 3-3, but it was crazy to think they could win game 7 on the road. But they did.
In a lot of ways, investing right now is like watching that game 7 live. We don’t know what the future holds. We are in uncharted waters dealing with a global pandemic. We don’t know how this ends. It sure feels like we are dealing with something we’ve never dealt with before.
But in hindsight, every disruption in the markets that we’ve dealt with seems so predictable. The US economy has recovered from the Great Depression, World War II, the Korean War, the Cuban Missile Crisis, the 1970’s oil shock, 1987 Black Monday, the tech crash of 2000 and 9/11 attacks and the Great Recession of 2008-09. All those events were equally unpredictable when we going through them. We didn’t know how they would end. In hindsight the “replay” shows our economy and stock markets recovering seems so predictable, but it didn’t feel that way at the time.
Jason Zweig wrote a great article in the Wall Street Journal on March 20 that described this feeling: https://www.wsj.com/articles/the-panic-of-2020-oh-i-made-a-ton-of-moneyand-so-did-you
It’s called “hindsight bias”, how things look clear to us when we look back at our recollections of them. In hindsight it seems clear that the markets would recover from 9/11 and the 2008-2009 crash, but at the time if we’re really being honest with ourselves it sure didn’t. It felt like that game 7 where the Cavs were hanging on with just a thread of hope; a win and a championship was anything but certain.
What Zweig has to say is that this feeling is completely normal with investing and it happens on a regular basis. There have been 14 “bear markets” since 1929 where stocks have declined by 20%. The good news is that as investors we can train ourselves to deal with these events by controlling our emotions and actions. We can’t control the markets, but we can control how we choose to respond to them. We can choose to restrain our instinct to sell stocks when they are down and stick to our long term investing plans.
None of this is easy, just like being a Cleveland sports fan isn’t easy! (I don’t think I’ll be cueing up many Browns games to replay during this stay at home period). But I do think someday I’ll look back on 2020 and be happy that I stuck to my investing plan; I hope you’ll be able to look back and do the same.
Stay safe, be healthy and think positive!