Market insights and analysis

By Jerry Wagner

From ghoulies and ghosties

And long-leggedy beasties

And things that go bump in the night,

Good Lord, deliver us!

Traditional Scottish prayer

It’s almost Halloween, and we’re still in the middle of a scary period in the stock market. September is historically the worst-performing month of the year, and October is the most volatile. Could there be a better time to discuss what frightens investors most—the things that go bump in the night?

The phrase dates back to at least the 1800s, when you can imagine children kneeling by their beds, praying to keep the monsters away. Today, the expression usually refers to unusual or frightening sounds you hear at night. More generally, it conjures up flights of the imagination or the unexplained.

Financial news gives investors a fright

Hush little baby,

Don’t say a word,

And never mind that

Noise you heard

It’s just the beast under your bed

In your closet,

In your head!

“Enter Sandman,” Metallica

In the world of investing, plenty of “monsters” can cause bumps in the night that keep investors from a peaceful sleep—whether it’s global tensions, uncertainty around the upcoming election, or the endless stream of financial press commentary. Each can stir the mind to imagine all kinds of scary future scenarios.

Investor fears often stem from listening to the constant media screams and howls. Trying to invest by following news events is often a road to ruin.

When I was one of the founders of a hedge fund back in the 1970s, my partners ran the fundamental side of the fund. I invested, instead, using a quantitative arbitrage methodology.

My fellow managers were very good at analyzing the likelihood of passing upcoming congressional legislation. Their strategy was to hedge their part of the portfolio to “take advantage” of the news of the expected passage or defeat when the legislation finally came to a vote.

Their strategy seemed logical. There would always be winners and losers in such an event. And they would buy the likely winners and short the probable losers.

Enter the real world. Rarely did the market cooperate. Like a poltergeist haunting a home, the company shares they bought and sold did the unexpected. They never seemed to behave as “logic” would dictate.

Shining a light in the dark

Things that go “bump” in the night

Should not really give one a fright.

It’s the hole in each ear

That lets in the fear,

That, and the absence of light!

“Bump,” Spike Milligan

While poet Spike Milligan’s limerick “Bump,” like Metallica’s “Enter Sandman,” refers to letting the fear in through the “hole in each ear,” it attributes fear to another source, as well. It’s not just the noise but also “the absence of light” that lets our fear grow.

Applied to investor fear, I think this references two irrefutable facts. First, investing is a full-time job. Most investors do not have the time for the research and trading that professional investment organizations spend all of their time doing. They like to enjoy life, take vacations, and they want someone who can monitor and trade their portfolios if they become unavailable in other ways.

Second, I think investors acting without a plan are investing in the dark. Lying alone in bed at night or sitting in the darkness can give rise to imaginary fears. But so can investing without a plan. Successful investors know when and why they are buying, and, most importantly, they know before they buy what will cause them to sell.

What’s your goal? Chasing performance or creating wealth?

When investors worry about a 5% or 10% decline, you have to wonder, “What is their goal in investing?” Are they chasing short-term performance? Do they think it’s realistic to expect to buy every dip and sell at every minor top? Or, is their goal to create wealth?

To create wealth, you have to invest in suitable investments but learn to endure the small dips. Trying to sell the small dips usually leads to whipsaws, as the general trend of the market is up. In addition, when you sell, you have to know what will cause you to buy in again. Otherwise, you get left behind and lose valuable investment opportunities for growth.

A steady approach

Market bumps in the night come and go. Having a disciplined plan with an investment professional and employing quantified, risk-managed strategies like those at Flexible Plan Investments can help quiet the demons that keep you awake at night. While uncertainty is always part of investing, staying focused on a long-term plan and avoiding distractions can help you navigate through the noise.

Have a happy and healthy Halloween!