Control the Controllable

by Kevin Karpuk

In the military, there is a quote to the effect that “every plan is a good one – until the first shot is fired.” For some people, investments feel the same. The global financial markets have certainly taken many shots at investors this year. The Federal Reserve is on a quest to vanquish inflation by raising rates, the Russians are on the warpath in Ukraine, cutting off key commodity exports, and the Chinese are shadowboxing a pandemic by implementing rolling shutdowns of their economy, pressuring the global supply chain. Few financial assets have avoided wild swings and downward pressure.

But there is a great difference between generals, who sometimes have mere minutes to make decisions that can change the course of the battle from disaster to victory, and long-term investors. Generals can be surprised by information about the enemy that they did not previously know. On the other hand, investors in risky assets should understand that there are periods when the markets will drop. The wise investors are those that plan for this and have the staying power to weather the storm. They do not push their reserves to the frontline in search of the last dollar of earnings during good times, but instead, they plan for liquidity needs to avoid having to make rash decisions in a rough market environment. Before the market turns, they look at portfolio modeling showing potential downside exposure and make the decision on whether their level of risk can be accepted. They do not know when the markets are going to turn, but they know there will be volatility and plan accordingly since, in the short-run, investments are a “not-for-prophet” business. No one can divine where the market will go over the next month, six months, or year. The volume at which the commentators on the television scream has no correlation to their ability to predict the markets. 

So, what should people be thinking about right now?

As Sun Tzu said, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” For investors, the enemy is not the occasional market swoon; it is often their emotions. Each bear market in history has had mini-bull markets within it. Most investors rejoice in these recoveries and hope each is the start of the next bull market. One of them eventually is, but along the way, the act of losing the same dollar multiple times can grate on investors, and their own agita pressures them to make decisions under duress.

Since no one can control the capital markets as they move day-to-day, focusing on areas in which you do have dominion can be an effective use of your time and a wonderful distraction from looking at your portfolio too often. Which areas are those? For institutional investors, downturns are often when they revisit their spending policies, but these times are also an opportunity to revisit development efforts. Fundraising can sometimes take a back seat when investment growth is strong, but during periods like this, when budgets are pressured, and the needs of beneficiaries are the greatest, organizations can refocus on being stewards for their donors and thinking of creative ways to encourage philanthropy to support their missions. Private investors have a less esoteric list to handle. Are your wills, trusts, and powers of attorney in place? Are you utilizing your annual gifting exclusion to minimize your estate burden? Have you formalized your family’s charitable planning? Have you communicated with your family what you would like your legacy to be?

Many readers of this article have faced numerous periods of market tumult in the past, and none has been the end of times, regardless of how painful each correction felt. This one is unlikely to be the end either, even with all of the shot’s investors have received across the bow this year. Handle what you can handle and revisit your plans to ensure that they still work for you. You are the general of your assets.

Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC Investment Advisory Services offered through Cornerstone Advisors Asset Management, LLC which is independently owned and operated.

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