To be a successful investor, you have to have a plan you can adhere to in all market cycles. No matter how good your investment ideas are, they’re worthless if you can’t stick with them. So, think back a few years and imagine this:

•A global pandemic hits. When it did, the market dropped by a third in about six weeks. Shortly after that, the medical community announced that they had a vaccine in process and markets came back very strong.

•Bitcoin: If you go back a few years, cryptocurrencies were red-hot — now they are not.

•Inflation came back to life in a real and meaningful way. The Fed said it was transitory, but it turned out that the Fed needed to raise rates to combat this inflation.

•Russia invaded Ukraine. 

There are always these events out there and always will be, and they derail investors. When the pandemic hit, you could say it was a good time to get out because it was too risky. Bitcoin was going up, you could say, “Hey, I’ll buy Bitcoin and get rid of my stocks. They’re doing better.” People chase — but this can cause permanent wealth destruction.

There will always be a news cycle event that will tempt you to make a trade based upon current events, however, markets are forward-looking and discount these events. Future unknown events move markets. If you invest without a plan, you are putting your financial future at risk.

The reality is that if you invest, you will have a lot of these headline news stories, which generate a lot of FOMO — Fear of Missing Out. This can be dangerous and can derail good, sound thinking.

However, if you have a plan, you can stay the course through market cycles. The market has delivered positive returns over time despite all the headline news (that usually induces fear). 

The reason we can expect that the market returns should continue to do well in the future is that human beings have this incredible ingenuity to solve problems and innovate, as witnessed by what’s happened over the last 50 years and beyond. What should drive markets up in the future is basically the incentive to produce profits. There are no guarantees, but human beings have been able to innovate and solve problems in the past. Why would that change?

David Booth of Dimensional said, “I don’t make predictions, but I do believe in the power of human ingenuity to solve problems big and small, innovating the whole way. What has stayed constant throughout my life is the power of people to make progress in the face of challenges.”

Plans need to be made during cold moments — cold meaning in a non-emotional moment. When the heat comes, which is a storm, and for sure there are always more storms on the horizon, as investors, make sure that you stick with the plan you made in advance in that cold moment.

The reason most people don’t get good returns is that they constantly chase. And if you chase what’s been hot, you basically get burned. . . . It’s funny, people think, “Well, I’ll buy a stock because it did so well,” but you don’t get the past returns of what you recently purchased. You only get future returns. So, while chasing it feels good, it can be wealth-reducing.

Have a plan you can live with, stick to it, and relax. That’s the key and my message for the month of January 2023.

Jeff Holland | VIAIV