Friday, June 24, 2016. Market opens down after surprise Brexit vote results; closes off more than 600 points on the Dow. Not a single client calls.
The news all weekend is dominated by Brexit.
Monday, June 27, 2016, about 3 p.m., with the Dow off 300 points, I get my first call from a client since the vote. “Nelson” calls about getting financial statements for a mortgage on a new home purchase. I ask him about Brexit.
His response: “Yeah, it stinks that the markets are getting hit, but you have us spread out all over and in lots of stable stuff, and you know what you are doing. We’ve seen worse, so we have no doubt you’ll do whatever needs doing and we’re gonna let you worry about it.”
The next call I got came on the morning of Tuesday, June 28, 2016 from “Bob” with whom I had never spoken.
“I wanted to get out when I saw the futures down 700 Friday morning, but I didn’t do anything about it. I watched the action carefully and when it was down 300, I thought maybe it was just one of those flash crashes. All weekend I studied it and hoped it would get better. I have always been a long-term investor, but after yesterday’s 260-point debacle, I just can’t sit there anymore. My advisor is very very worried and wants to sell given the irreparable harm from the breakup of the EU. What are you telling clients?”
The Dow dropped the same amount for my calm client as it did for the freaked out caller. The caller explicitly said he was a long-term investor, and I know my client identifies as such. In both cases, the event that could trigger angst has come from an external source, not something unique to the caller or my client. Yet they are in very different emotional states.
This kind of contrast has come up in virtually all “crisis” situations in the past. It is usually caused by a combination of three things: the media, the advisor and the person.
The media certainly contributed to the caller’s stress levels, and that is partly by design. The presentation of information, commentary, prognostications and the like are quite deliberately provocative. The consumers of media must continue to consume for the outlets to make money.
In this case, I can only place some blame on the media. The vote was a surprise, and there is a significant economic and political storyline here worthy of coverage.
The advisor is also contributing to the problem. Don’t get me wrong. The advisor is entitled to his opinions and feelings. I don’t think it is healthy or proper to deny those feelings either. However, I am confident that one of the last things a freaked-out client needs is a freaked-out advisor. If the advisor can’t stay grounded and rational, how is the client going to stay grounded and rational?