Trial by Fire

DURING MARKET CRISES, I’ve sometimes made bad investment decisions—and sometimes I’ve successfully done nothing.

In 2008, I was living and working in Taiwan, meaning I heard what happened to U.S. stocks after the market was closed. When it’s 4 p.m. in New York, it’s 4 a.m. in Taiwan. I was also very busy at work.

This made it easier to do nothing about the 2008 stock market meltdown. I did nothing so well that by 2011, when I returned to the U.S., the problem had resolved itself. The recovery made me look like a relative genius. I should try doing nothing more often.

When anxiety rises, the three classic reactions are to freeze, flee or fight. Fleeing or fighting without careful thought can make a bad situation worse. Freezing—or, more accurately, pausing—at least gives me the opportunity for further assessment and reflection. It may lead to a more effective, though less immediate, response.

Often in a crisis, we know things are changing but we don’t know where things are headed. Herds have been known to stampede over cliffs in the name of avoiding disaster. Investors and even algorithms can do the same thing during a market crisis.

It’s usually wiser to just follow your long-term plan. By 2020, when the pandemic started, I was surprised when things dropped so far and so fast. But I just kept on doing what I’d planned.

I rebalanced, selling the investments that hadn’t dropped as much and using the money to buy more of the ones that had dropped even further. I didn’t look like a genius, but I didn’t lose my shirt, either. By the end of the year, I had more money invested and a very respectable positive return.

This shows that a good plan consists not just of our initial investment decisions, but also of the adjustments to be made as circumstances change. These adjustments could be as simple as reinvesting dividends or as drastic as selling individual stocks when they decline by more than 10% from their most recent high.

In a time of crisis, normal review times—say, once a year or once a quarter—might need to be accelerated. Rather than changing the plan, it can be time to adjust investments to match our original intentions.

To be clear, sometimes I do make changes to my plan, not always with good results. After the Sept. 11, 2001, terrorist attacks, I thought that surely people would keep flying. I bought airline stocks. And, boy, did I lose my shirt. I didn’t know what I didn’t know. I tend to hold my opinions too dearly. I assume everyone else thinks like I do, but they don’t.

I failed to understand the capital-intensive nature of airlines—and that a lot more people wouldn’t fly for a lot longer than I ever imagined. Airlines had expensive equipment purchased on credit that was suddenly much harder to use. They had lots of people on payroll when they finally started flying again, but the planes weren’t full—and empty airplanes cost almost as much to fly as full ones. After a heap of punishment, I sold my shares.

Perhaps the only good thing I can say about 2001’s misadventure is that I helped other investors lose a little less by buying their airline shares at a terrible time. And I hope I learned some humility from the experience.

Crises present us with a good opportunity to reassess our plans and change our minds. They may bring to light the weaknesses in a strategy. The sooner we address that, the more we might benefit. Here’s what I hope I remember next time:

• Crises are often better times to think than to act. When my thoughts are racing, my actions can be ill-considered. It’s only after a crisis has passed that the new reality becomes clearer.
• During a crisis, I can justify any decision—good or bad—to myself. I may doubt those decisions at the time and regret them later on, but I may still act on them. That’s why a long-term plan is so valuable and worth following.
• After the crisis has passed, I can always revise my strategy. Crises, once processed, can help me to become a better investor. I don’t want to react out of fear, but rather to change thoughtfully.

Steve Spinella is an international Christian ministry worker. He and his wife Laura have been married for more than 40 years. For more of Steve’s writing, check out his blog.

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