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A Christmas Carol

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Still reeling from a couple troubling Christmas Spirit visits, I was dreading the concluding pop in.  The first two gave me an approval rating somewhere between Jimmy Carter and Tom Crean.  So, I could only imagine what the Ghost of Christmas Future (GOcF – we’ll call him oddly spelled Goeff) had in store.  Sometime after midnight, Goeff arrived at my basement bar: overgrown beard, ripped jeans and an Ed Sheeran t-shirt.  Rough first impression but we chugged a shot and Ubered off to the early 2020’s.
 
Friendly but firm, Goeff warned me this wouldn’t be all pleasant.  President Trump barely made it through his first term and spent the nation into its first recession since 2009.  Budget deficits have soared; the Federal debt now tallied over $30 trillion.  2020 President Elect Pence had quite a mess on his hands.  Buoyed by a strong evangelical turnout, he garners a tight win over Hillary thanks to the Electoral College.   Interest rates and unemployment are soaring.  Inflation is finally picking up in the midst of an economic stagflation.  The stock market has now fallen 40% from its 2019 all-time high.  Gold soars to $2800/oz. on rumblings of a Treasury debt default.
 
I feverishly asked Goeff what to do.  He said most of the damage was done.  I hadn’t adhered to prudent investment behaviors when given the chance years ago.  I pleaded for specifics to which he barked:
 
  • “You engaged in Herd Instinct – you listened and acted like everyone else.  When the market was making all time highs, forecasters said it would continue for years to come.  This groupthink made you fail to take some profits and rebalance portfolios accordingly.  You abandoned your personal investment policy & got greedy.
 
  • You arrogantly took credit for all good investments while blaming any poor outcomes on something or someone else.  Investing is humbling – you’ll be wrong quite a bit.  This Self-Attribution Bias blinded you from learning from your mistakes.  You were also insufferable to be around when the going was good.
 
  • When the market started to fall, you engaged in the Sunk Cost Fallacy.  You were too paralyzed by your cost basis when in fact you should have been raising cash.  Your losers became bigger losers because you felt the market owed you at least break even.  This Endowment Effect made you feel just because you owned an investment made it more valuable.   That really bludgeoned Tesla investors in 2021 when it declared bankruptcy.
 
  • You looked around for Confirmation Bias when markets started moving against you.  You’d search the internet, watched CNBC, talked to like-minded investors in pursuit of any information that gave you self-assurance.  And quit taking stock tips from your 12-year-old nephew!  This included Authority Bias – listening to any pundit, politician or stock market guru who mirrored your existing investment beliefs.
 
  • Your overconfidence was a function of Hindsight Bias.  You thought you could identify all the potential warning signs that you somehow missed from the ’08-09 market crash.  You would be the first to leave the party.  You and everyone else thinks they are above average drivers.  Why do you think Uber exists?
 
  • Now that markets have fallen so much, you allowed Decision Fatigue to set in.    You can no longer make an objective financial evaluation.  Your confidence is shot and you’ve moved to all cash now that most of the carnage is over.”  Then he doodled this, in permanent marker, on my forehead:

At this point, I asked Goeff if there was any good news.  He did share that IU would win banners #6 and 7 under Archie and that I qualified for the 2023 Senior Open - thanks to cutting edge technology and an attitude overhaul.  Additionally, I was still married, capable of wearing skinny jeans and even had some hair.  This made me feel a little better.
 
Looking out into 2024, President Pence was defeated by Alexandria Ocasio-Cortez in a landslide.  She unanimously carried the Hipster vote with a promise of full retirement benefits, including Social Security, at age 40.  She paid for this referendum by cutting the defense budget to that of Greenland.  Once the funds ran out, after 3 months, she sold the White House and Washington Monument to China.  They are now painted red.  This bought her another two days before impeachment.
 
Emotionally wood chipped, I begged Goeff to take me home.  I reassured him that while I realized I couldn’t control the economic or political landscape, I could make good on my financial conduct.  I would review my asset allocations, temper my emotions and preserve capital for another investment cycle.   He dropped me off back at the basement.  I was awakened to a licking cat and a bruised bottle of Woodford.   I had hoped it was all a bad dream – until I saw my forehead in the mirror.  But as Goeff reminded me: it’s never too late.   Merry Christmas.  
 
Fiscal Fitness is a publication of Houlihan Asset Management, LLC for the benefit of its clients and friends.     Houlihan Asset Management.  Wealth Counseling/Asset Management. Copyright 2018
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