Investment Decisions at “Ludicrous Speed”

Riding in the elevator this morning, a fellow passenger commented on how quickly the year had flown by for her. Every year about this time, I find myself having that conversation regularly. I’m sure you do as well.

Indeed, each year seems to pass more swiftly than the last. As one of our clients wryly puts it, “Life is like a roll of toilet paper. The closer you get to the end, the quicker it goes.”  I already feel like I’m moving at “light speed.” If this little quip is true, I should start preparing for “ludicrous speed.” 

Reflecting back on the year, I remembered a blog I wrote back in March titled, “How Much Farther Can It Go?” At that time, the Dow Jones Industrial Average was at 14,397, and we were beginning to get questions from clients along the lines of the blog’s title. The most common of those questions was whether we should reduce or even eliminate our stock exposure since the market was at an all-time high. At the time of this writing, we find ourselves at 16,168. That’s an additional 12% increase, not including dividends. With the benefit of hindsight, the market had farther to go after all, and deviating from our long-term plan by changing the stock exposure would have been a bad decision.

So as we speed ahead from 2013 into 2014 the question remains, “How much farther can it go?” As I confessed back in March, I don’t know. We can’t predict or control the short-term direction of the market, but we can control how we respond to it. Our behavior is the biggest determinant of investment success. Bad investment decisions are almost always made when the emotions of fear and greed are moving at “ludicrous speed.” By contrast, the very best investment decisions are generally made when we slow down and think through the implications of those decisions. I’d propose that we opt for the latter. Your portfolio will be better for it.