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A Tale of Two Conversations

Do me a quick favor. Think back 10 years to September 2008. What do you remember about that month? Does anything stick out in your mind as particularly noteworthy?

For most of us, that month holds no significance. It was just another month.

If you, however, had any money invested in U.S. stocks during that time – or if you paid any attention to the financial media – you may recollect the stock market, and likely your portfolio, was taking body-blows daily. Investors were scared. The S&P 500, a common stock market benchmark of 500 large U.S. companies, was down about 9.0% in September 2008.

Little did we know it was only the beginning.

I remember that time period in remarkable detail. For me, it was like when Dorothy left her home for Oz and everything burst into technicolor. Stock charts were as red as Dorothy’s slippers; everything was falling in value all at once. Investors were rattled.

Looking back, I recall two fascinating conversations I had during that turbulent time.

The first was with my boss. He was a clerical worker; a 50-year-old single guy with a cushy office job. He stopped me in the hallway one afternoon, panicked. “Have you seen what’s happening in the market?” he stammered with a hint of perspiration on his forehead. “I have already lost $30,000 in my retirement account. This is crazy.”

He went on to reason with himself in front of me that he needed to make a change to his portfolio. He “could not afford to lose any more money.” The next day he called the retirement plan company and sold his stock funds and purchased investments that were supposed to be safer. He could not bear the pain of watching his account lose any more of his hard-saved dollars.

The second conversation was with a business school professor. He taught a class on investments. The professor saw me reading the Wall Street Journal over my lunch hour and struck up a conversation.

“Are you reading about what’s happening in the market?” he asked. “People are spooked.” After a brief discussion about the financial events splashed on the front page of the newspaper, the salt-and-pepper-haired professor turned to walk away. Then he stopped.

“You know, generally the best time to invest is when others won’t,” he noted. “I’ve made plenty of dumb investment decisions, but I think it’s time for me to buy more stock.” Off he marched.

Two conversations with two gentlemen about the same age, facing the same financial environment. And yet, two drastically different conclusions on how to conduct their financial affairs.

Unlike in sports, there are no declared winners or losers when it comes to investing.

But we know how the events played out. Since that time, the U.S. stock market is up almost three-fold. That’s despite the fact the market dropped another 22% from October through December of 2008.

It’s interesting, though. I suspect if I asked my former boss what he remembers about the fall of 2008, he probably could not recall anything significant happening in his life. I doubt he would remember how panicked he felt, how terrified he was that he might “lose everything.”

Successful investing is less about numbers and much more about managing emotions.

Keep that in mind. The markets are apt to test investors from time to time.

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