Fear can be a good thing. It is a product of evolution. When our ancestors perceived an actual threat, their bodies responded in kind. Their brains when into a hyper-focused state that allowed them to better perceive their surroundings. Their heart rates went up to increase oxygen flow, and the Fight or Flight response kicked in to best react to the threat. This was a means for survival against predatory animals or other humans. When there is danger, fear is a good thing. However, this might not always be the case, especially when investing.
Complaints Mark Matson often has concern fear-based investing. We can become influenced by our fears of what might happen next rather than staying in the present and allowing our actions to dictate our futures. One case of this is the worry many investors had after a rather dull first quarter of 2014. A few months ago, Zack Shepard joined several other investors in a panel discussion on the first quarter on Neil Cavuto’s show on Fox Business. His main message was for investors to feel the fear but invest anyway.
Mr. Shepard pointed out the fact that, historically, there is no set direction for the market to go in after a flat first quarter. Each time it has happened, there were different variables that influenced where the market would go. He, therefore, told investors to listen to the fears they might have about the market, but think about what makes the most sense long-term. Investors should take a look at their portfolio and make smart long-term investments in equity that have the potential to sustain them twenty years from now, rather than worry about what happens next month.
Investing wholly based on fear is a self-fulfilling prophecy; it will only cause you to lose focus of what you should be doing to sustain long-term growth. In the appearance referenced above, Zack Shepard made the case that we shouldn’t worry as much about what might happen after a flat quarter, because each instance of a flat 1st quarter is different. Historically, equity investments have helped make investors a lot of money. Investors should remember that as they make moves to create their own little American Dreams.
A little fear is great in many situations. However, it sometimes isn’t when it causes you to take your eyes off the prize. In the case of this first quarter lull, it makes sense to acknowledge the fear but to invest anyway.