In three trading days, the DJIA recorded its biggest one-day point gain and its biggest one-day point loss in its 125-year history.
Thursday Was Ugly
By the time the final bell tolled on Thursday, February 27th, stunned investors saw that:
- The DJIA gave back 1,190 points and came to rest down 4.4% on the day
- It was the DJIA’s worst day since February 2018
- It was the DJIA’s biggest one-day point drop in history, surpassing the previous Monday’s point drop of 1,031
Monday Was Beautiful
By the time the final bell tolled on Monday, March 2nd, stunned investors saw that:
- The DJIA surged 1,294 points and came to rest up 5.1% on the day
- It was the DJIA’s biggest one-day point gain in history, surpassing the previous gain of 1,086 points on December 26, 2018
- There were no decliners in the DJIA – the worst performer was Disney and it jumped 2%
Your Portfolio Depends on Your Behavior
Your long-term financial success depends less on the structure of your portfolio and more on your ability to adapt your behavior to changing economic times.
As a financial planner, my primary business isn’t just producing your financial plans or furnishing you with investment advice, but caring for and transforming your emotional well-being.
At the very foundation of such well-being lies your behavior. And the dominant determinants of long term, real-life, investment returns are not market behavior, but investment behavior.
Meticulously constructed investment portfolios can weather almost any economic storm, but none can withstand the fatal blow of an owner who panics and sells out. In fact, so prevalent is such panic that an entire field – behavioral finance – studies how and why investors might make dumb money moves.
Financial advisors are the antidote to investors’ emotions. Our job is to keep clients from turning a temporary decline into a permanent loss as well as tempering irrational exuberance.
Stock Market Corrections Happen
As of market close on Thursday, February 27th, the DJIA and the S&P 500 were each off more than 12% since their all-time closing highs reached earlier in February. That means they were in correction territory. But remember:
- There have been 26 market corrections (not including the recent one) since World War II with an average decline of 13.7%
- Recoveries have taken four months on average
Stock Market Jumps Happen
As of market close on Monday, March 2nd – with just one trading day away from the last market correction – the DJIA and the S&P 500 recorded historical point gains and are no longer in correction territory. And in case you didn’t know:
- The 5.1% jump on Monday ranks in the top 2% of the more than 31,000 trading days in the history of the DJIA.
Don’t React to Such Large Swings
No matter what financial advisors might preach, however, the tendency in all of us to sell low and buy high will not stop anytime soon. That’s why behavioral coaching is one component of client-centered financial planning.
Supporting your financial and emotional well-being requires that both you and I learn from each other and work together over the long term. And we both must realize that antidotes to panic and exuberance sometimes require more than one dose.
Call me if you need more medicine.