Of course, the worst time to sell a thing is when other people are selling that same thing. When you unload stock during a market crash, you’re participating in a kind of mass hysteria, where everyone is devaluing everyone else’s investment. You’re joining a crowd that’s driving down the worth of what it owns, a crowd that’s making its own nightmare come true. That’s when you want to buy, not sell. And I knew this. I swore by it. Never dump stock in a panic! I had kept money in the market through the 2008 financial crisis without really blinking an eye.
Ever since the year 2000, when I started my adult working life, I’ve been a “participant” in the market, not as a big-league investor, but as a little-league saver. In that time, I’ve found that investing can be a source of life lessons, regardless of the specific dollar amounts involved. From investing, you can learn that risk creates the possibility of reward; that by repeating a short-term risk over time you can secure a high chance of long-term gain; and that your safest-seeming option might be the riskiest of all. I knew these three lessons well before the COVID crisis, but there was a fourth lesson I hadn’t learned.
When COVID hit, I had already been in the market for 20 years. I had weathered enough fluctuations that I felt confident in my identity as a buy-and-hold, stay-the-course kind of guy. I had practiced this long-term investing philosophy and even gently preached it to the few friends who wanted to talk with me about financial matters.
But COVID was so unlike anything I’d experienced that I found myself saying, “This time it’s all different. The old lessons won’t apply anymore.”
Remember when death counts were rising and hospitals had no beds left and ventilators were in short supply and everything across the world was shutting down? There was no vaccine in sight and no one knew what was going to happen next. You couldn’t buy toilet paper. You couldn’t buy a bag of rice. The pulse oximeters, which no one had heard of before, were now entirely sold-out at drug stores. The US president was advertising a bleach cure.
“Stay the course? That’s not going to work anymore. I could lose everything.”
If people kept getting sick and dying in larger and larger numbers, how would the world keep functioning? How would cities keep the sewers clear? Who would run the subways? Put out fires? Keep the lights on?
In those scary days of March and April 2020, I experienced a failure of imagination. I couldn’t imagine any outcome aside from a systemic collapse. “This is it,” I thought. “This is what the preppers have been prepping for. This is when the teetering house-of-cards of the world economy finally comes tumbling down. Forget the old rules and assumptions, this is going to be a new reality.”
I often felt queasy, sweaty, faint, as the news of death continued blaring over the radio, so I’d take my temperature: did I have a fever? Would that mean COVID? If I had a toothache and needed to go to the dentist, could I get sick from the trip? There was a constant fear of catching the virus, or seeing my loved ones catch it, finding ourselves unable to breathe, unable to get a hospital bed, unable to visit each other. It would have been so blissful to be one of those people who was sure it was all a hoax, but that wasn’t me. “Maybe I’m overreacting?” I’d think. Then I’d turn on the news and hear about temporary morgues being set up to accommodate the devastation in New York City. And all of my health anxiety was compounded by financial anxiety.
Would I still have work in a few weeks? Would I need to flee my urban home? Find some new arrangement where I could live with family in another state? Maybe this was the time when I’d need to put my savings to use. But that savings was stuck in the cratering market. Yes, I had stashed some emergency money in a safe place but this was looking like a giant monster of an emergency – what if I needed more than my emergency fund contained?
There were days when trading on the New York Stock Exchange was halted not once but two times, three times, because major indices were tanking so quickly. Was it possible that all the conscientious saving I had done over 20 years to prepare for “the future” could now evaporate and it would all have been for naught? Could it be that this grim “future” had just arrived, but after 20 years of preparing, I’d be left unprepared?
Pandemic anxiety created a physical experience unlike anything I’d ever felt – a racing heart that just wouldn’t settle down. Days on end when I couldn’t get any rest. I tried everything to find some calm – breathing, exercise, attempted positivity, talking, netflix – nothing worked.
I listened to some financial bigwigs on TV, the heads of major brokerage firms talking about weathering the storm. They were spouting all of the ideas about long-term investing that I already thought I believed. “Stay the course,” they said, the same motto I’d been parroting for 20 years. “Stick to your long-term plan.” Exactly what I had done so far and what I’d sworn I’d forever do. But now I thought, “They’re all lying to me. When they tell me to stay the course, they’re just saying this because it’s in their interest to have us gullible small-time investors remain in this tumbling house-of-cards market and lose.”
For days and days, I held out. “I’ll never sell in a panic,” I told myself. “Never.” But the news kept getting worse and my anxiety kept getting worse, now bordering on paranoia.
It seemed like the only thing I could do to avoid a heart attack was to sell.
So I sold.
I had been sufficiently battle-hardened over 20 years that only a global pandemic could get me to abandon my buy-and-hold investing policy, and lo and behold, that global pandemic arrived and did the trick.
There was still a fighting shadow of the stay-the-course guy inside me, so I didn’t sell everything. But I sold enough to matter: 50%.
Immediately after my market exit, I was sure I had made the right decision because the pangs of anxiety settled down. There was a sense of calm. No matter what happened now, I could no longer lose everything. That risk was off the table. I felt I had done what was responsible: I had protected the resources that could help me protect my loved ones and myself in our approaching time of need.
But shortly thereafter, the market started recovering. From my standpoint, this was a mystery. How could stocks start rising again along with rising death counts, hospitals filling up, ventilators in short supply, and no good news on the horizon? It just made no sense.
And then I didn’t get sick. And neither did my family.
So what had I achieved with my panic selling? I’d locked in some losses and missed out on some gains. And that’s exactly what they warn you is going to happen when you try to time the market.
I had saved myself from a heart attack, but at what cost, and was it worth it? At the time, yes, health and some measure of calm seemed way more important than money.
Looking back though, that was a lot of money I lost. A lot of money that my 20 years of market experience and strong investing philosophy would have prevented me from losing, if I’d trusted that experience.
What’s the lesson in this?
They say that past performance is no guarantee of future results. That’s in reference to stocks and bonds. But it’s also true that our own past behavior is no guarantee of our own future behavior. Just because you’ve done the right thing in one market downturn doesn’t guarantee you’ll do likewise in the next. In my case, calmly enduring the 2008 crisis was no guarantee that I’d have the mettle to withstand the 2020 COVID turmoil. The qualitative experiences of those two downturns, and my life situations at those two times, were not the same.
No matter how well you feel you’ve learned a principle, there are scenarios that are so stressful and confusing that you’ll fail to apply the principle. Everyone’s threshold and triggers are different but you have yours. There are situations where you’ll conclude that all bets are off, that everything is different this time. Situations where you’ll doubt what you know and throw out the hard-earned knowledge that could help you. Situations so difficult that you’ll experience a failure of imagination – an inability to conceive of recovery – a blindness to any light, even hypothetical light at the end of the tunnel – and only later will you understand the cost of that failure of imagination.
But there’s a cure for this. It’s to have an advisor. It’s to have someone you trust who can talk you back from the ledge.
I didn’t have an advisor during COVID. I had friends and family who could console me about the state of the world, but no one who could guide me on financial decisions.
I had looked into getting an advisor over the years but the cost-benefit analysis never convinced me I should give someone a recurring cut of my assets – for what? My financial life isn’t that complex. I know how to invest in index funds and I know how to buy and hold – what’s so hard about that? And why would I pay someone to coach me against panic selling if I already knew that panic selling was a bad idea?
And yet if I’d had an advisor during COVID I probably wouldn’t have sold. Just one conversation with someone I trusted could have done the trick. Simply knowing that another person was looking in on my situation with my best interest in mind could have changed everything for me. One conversation with an advisor at the right time might have saved me a lot more money than I’d have paid the advisor in fees over many years prior.
But there’s a silver lining in this. By pushing me into abandoning my principles and losing money because of it, COVID made me finally get an advisor, which could save me a lot in the future.
Nothing I could have done by myself – nothing I could have learned or studied or decided or promised myself before COVID could have prevented me from selling in a panic because I had already gone through a good financial education, had already made those promises to myself, and had already demonstrated a commitment to my buy-and-hold philosophy over many years. What I lacked was an advisor I already knew and trusted, who I could call in that frenzied moment.
So the fourth life lesson, stated simply, is get an advisor. But really, it’s that when you learn something important in life, find another person who can help you stick to what you’ve learned.
The importance of doing this is equivalent to the importance of the thing you’ve learned. If you really believe in a concept or best-practice, don’t assume you’ll be able to apply it all on your own at the time when you need it most. Do the groundwork now so you’ll have someone to help you remember what you’ve learned when you need that help.
In extreme situations, we are tempted to conclude, “This time it’s different. The old strategies don’t apply anymore,” and indeed there are scenarios where that statement can be true. We need to recognize change and adapt to new situations with new behaviors that are newly appropriate.
But the conclusion, “This time it’s different,” is a potentially dangerous conclusion to draw all by ourselves because it gives us license to abandon what we’ve learned, including the most valuable and helpful things we’ve learned. We need others to remind us: maybe it’s not different this time. Maybe now is precisely the time when you need to apply the old wisdom. Maybe now, while you’re the most afraid, is when you need that old wisdom the most. ■