“Be fearful when others are greedy and to be greedy only when others are fearful,” Warren Buffet.
That quote is probably one of the Sage of Omaha’s most famous of all time and it’s one that many finance professionals reflect on during tough market conditions.
Out of all the interviews I’ve done over the years with planners, fund managers, brokers and everyday investors, it’s the one sentence that keeps repeating itself and which many people try to live by.
But the challenge is that this line alone will never be enough to completely ease that human factor of worry and anxiety.
I asked two advisers what else they’re saying to clients during volatile times, and for some key messages that they live by.
Richard Carey senior strategic adviser at Omniwealth says given the recent share market correction, now is the time to be challenging investor beliefs about what they think they ought to be doing.
“I’m not saying much different to clients than what I have said during volatile markets in the 10 years since the Global Financial Crisis (GFC), which is really about turning down the noise, revisiting your strategy and not getting caught up in the daily news cycle that’s interesting but unhelpful.
“It’s not the time to react but it is the time to respond. I had a client say to me during the worst of the GFC how low do we go before we sell? The better response was for them to ‘stay in their seats’ and consider buying opportunities. That’s being counter-cyclical, a hallmark of successful investing.
“I always remind my clients that March 2009 was the capitulation in the market, when value re-emerged, risk appetites re-awakened and for those who didn’t react to their emotions, relief replaced anxiety.
“In 2008 the Australian share market fell by nearly 40%. Some investors bailed out only to see the market bounce by more than 37% in 2009 and rise 7 out of the 8 subsequent years.”
Tracey Sofra financial planner at Sofcorp Wealth has ten things that she often says to clients when times get challenging.
1) Don’t react to market volatility this is the nature of the beast
2) 90% of the time, emotionally driven decisions are going to be wrong
3) Seek advice from your planner and discuss the issues
4) Make sure that the client’s long-term goals have not changed and that they still have the same risk profile
5) If they are invested in quality managers (AAA rated) then it’s a hold position until we encounter another GFC
6) Keep their long-term goals in mind
7) Provide assurance they are in quality investments
8) Talk about the opportunity to invest further as prices are low
9) Remember what goes down must go up – this is the investment cycle and the economic cycle
10) The market has already factored in most of the news as it’s usually progressive
Carey added that if the right conversations around risk, diversification, liquidity and strategic long-term asset allocation are had early in the piece, then there shouldn’t need to be any response when markets deliver normal corrections.
“If our conversations landed on a suitable strategic asset allocation in the first place and the client’s goals are unchanged, then portfolio exposure to market risk should match the client’s needs.
“It is about having some discipline and understanding that markets behave this way.
“The real danger in reacting by selling during a downturn is timing risk. And it’s two fold, mistiming both the selling and then buying to get back in.
“If you missed the best 15 buying days in the 16 years from 2001 to 2017, then your annualised return would have been about half compared to including returns from that handful of days.
“But not everyone has a 10 year plus timeframe. Some clients want to retire in two years’ time or start an income stream now. Then we need to take these goals into account in designing a strategy to suit particular needs.
“Certainly a longer term investment timeframe will smooth volatility impact and halt the risk of capital loss but the value of advice is tailoring a strategy to certain needs and keeping clients on track.
A key take away from the interviews I’ve conducted is that when you’re talking to clients, really listen to any concerns they may have. Be ready to talk through any issues and be equally as ready to talk about their goals and the strategies in place to achieve them.
Bianca Hartge-Hazelman writes on women’s money matters and is the publisher of Financy and The Financy Women’s Index
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