Dol­lars & Sense

Make Your Prof­its in Times of Tur­moil

RSWLiving - - Departments - BY S. AL­BERT D. HANSER S. Al­bert D. Hanser is the founder and co- chair­man of Sani­bel Captiva Trust Com­pany, a Sani­bel- based wealth man­age­ment firm with di­vi­sions in Naples, Tampa and Chicago. Learn more at san­cap­trustco. com.

If the past five years have taught in­vestors any­thing, it’s that pa­tience and dis­ci­pline mat­ter most. On nearly a dozen oc­ca­sions since 2009, in­vestors have been in­duced to sell shares in a panic, of­ten fol­low­ing so- called “calami­tous” events that had the po­ten­tial to per­ma­nently harm stock prices.

As we now know, how­ever, the Greek debt crises, the Arab Spring, civil wars in Libya and Syria, the Euro­pean bank­ing morass, the Ja­pan earthquake, the U. S. debt show­downs and the cur­rent Ukrainian emer­gency have done lit­tle to slow the sales of com­pa­nies or im­pair their val­u­a­tions.

Un­for­tu­nately, those who re­acted to any, or sev­eral, of these events now live with port­fo­lio per­for­mance be­low their ex­pec­ta­tions. With in­vestors again be­ing put on alert due to events in Crimea, we of­fer our pre­scrip­tion for coun­ter­ing this in­ces­sant news cy­cle.

Your time hori­zon should dic­tate your re­sponse. In­vestors who strive to be long- term ori­ented hurt them­selves re­act­ing to short- term events. Al­ways try to put the news in the con­text of your hold­ing pe­riod. Traders must re­spond to all news that may move their stocks and cause a re­ver­sal of trend, whether it’s a weather event, a strike, a geopo­lit­i­cal oc­cur­rence, an eco­nomic data point or a slight shift in mon­e­tary pol­icy. You don’t. In­vestors who de­sire to hold their stocks for years need to fo­cus on is­sues that im­pact the long- term growth of the com­pa­nies they hold, such as pro­duct­line de­vel­op­ment, profit mar­gins, the strength of man­age­ment, cap­i­tal al­lo­ca­tion and com­pet­i­tive ad­van­tages. Don’t mix your rea­sons for buy­ing and sell­ing.

The mar­ket dis­counts shock­ing news events very quickly and moves on. Af­ter the Sept. 11, 2001 at­tacks, stock prices swooned for five days, los­ing 11.6 per­cent, but climbed back to their preat­tack highs by mid- Oc­to­ber. When the first Gulf War be­gan in Jan­uary 1991, stock prices bot­tomed the day of the coali­tion in­va­sion, and within six weeks had risen nearly 21 per­cent. The 2011 earthquake that dam­aged or de­stroyed nearly 1.1 mil­lion build­ings in Ja­pan, caused a nu­clear power plant melt­down and elicited dooms­day pre­dic­tions from the me­dia, prompted just a three- day sell- off on Wall Street that was fully erased within days.

Once the stock mar­ket dis­counts the news shock, it tends to re­sume the un­der­ly­ing trend. Events such as the Rus­sian an­nex­a­tion of Crimea tend to be viewed as “sideshows to the big show,’’ a dis­trac­tion that tem­po­rar­ily di­rects traders’ at­ten­tion away from the more- prom­i­nent is­sues of the day, in this case, GDP growth, cor­po­rate earn­ings and the trend of in­ter­est- rates.

The me­dia will cer­tainly over- hype all news events these days. Watch The Weather Chan­nel for just a few days, and it will seem like at­mo­spheric calami­ties are oc­cur­ring with alarm­ing fre­quency. In re­al­ity, hur­ri­canes, tor­na­does, droughts, mud­slides, wild­fires and floods oc­cur around the world just as of­ten to­day as in the past, ac­cord­ing to property and ca­su­alty in­sur­ers. The dif­fer­ence is, these events now are tele­vised 24/ 7, and the cov­er­age feeds right into an in­dus­try that needs to in­duce you to trade.

You make your best prof­its in times of tur­moil. You just don’t re­al­ize it at the time. Con­versely, you make your worst mis­takes be­ing en­ticed, for the wrong rea­sons, to sell your shares at cheap prices.

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