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Rough Seas

Are You a Surfer or a Sailor?

It’s far better to be one than the other when financial seas get rough.

Just for fun, tell me the closing number of the Dow Jones Industrial Average on April 6 of 2017. Wait, I’ll make it easier — tell me the closing number of any date in April 2017.


Well, so am I. Who could possibly remember that? What’s more, who even cares? After all, it makes no difference whatsoever.

By that notion, you’ll soon forget today’s Dow too. And that’s the point: If you are a long-term investor — as we counsel our clients to be — there’s no need to be concerned with what the Dow is doing on any particular day.

When volatility returned to the stock market recently (as we warned it would), some folks called us expressing worry — and a few showed outright fear.

(I can’t help but notice that these folks never thought to complain about upside volatility. They only object to downside volatility — failing to realize that they can’t have one without the other. But I digress.)

Consider Monday, Feb. 5, 2018. The Dow dropped 1,175 points that day — its worst daily point loss in history. The following day, Feb. 6, the Dow closed up 567 points, nearly recovering half of Monday’s losses, and then for the rest of the week, it bounced between gains and losses. By week’s end, the Dow was down 2,426 points, or 9.1 percent, from its Jan. 26 high.

What a wild week of gyrations! And we’ve seen additional bursts of volatility — both up and down — many times since.

So, if you find volatility discomforting, perhaps my analogy of surfers and sailors might help.

Surfers love the thrill of riding the ocean’s waves. But they often wipe out.

Sailors, by contrast, know that waves don’t affect the tides. The ocean ebbs and flows on a regular schedule; tides are predictable, measurable and manageable.

Which are you?

If you’re a surfer, you want to catch the next big wave. Timing matters — miss it and you lose. Your last win can be wiped out by the next loss. You must pay constant attention, and even that won’t ensure your success. And we all know that surfers always end up exactly where they started: on the very same shore. They might have enjoyed lots of action, but they actually travel nowhere.

Sailors, though, ignore the waves. Instead, they take advantage of the predictability of tides and use them to achieve their goal: getting from this shore to the one that is far, far away — so far that it can’t even be seen.

Sailors know that they will encounter big waves along their journey, and they understand that such storms must be tolerated. After all, jumping off the ship doesn’t help them reach their goal.

So, if you consider yourself a long-term investor, one who is concerned with achieving major life goals such as college for your kids and retirement for yourself, you’ll act as a sailor and not as a surfer.

And as a sailor, you’ll know that you can ignore the waves of volatility when they occur.

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