The past week proves once again that what happens on the other side of the world can make waves in the financial markets. As Russian tanks, troops, and aircraft continue attacks throughout the nation of Ukraine, we are being treated to daily glimpses of devastation as, for the second time since 2014, Russia is using its army to seize territory in blatant disregard of international norms and the cost in human lives. And the financial markets have noticed, trading at mostly lower levels due largely to the uncertainty surrounding the war in Ukraine.
The human cost—in lives lost, damage to the economy of a sovereign nation, and disruption to the world order—is awful to contemplate. Russian citizens are certainly feeling the pain, as US and European governments, with Japan, Australia, and other nations, are escalating their sanctions against the Russian economy. Meanwhile, investors have not enjoyed watching as the financial markets react to these disturbing events with wide swings in volatility.
At the same time, other news with more positive implications is being lost in the background. For example: Did you know that earnings for companies in the S&P 500, in aggregate, rose 22% last quarter, or that overall economic growth in the US continues to be unusually robust, as evidenced by the recent better-than-expected report on US job growth and shrinking unemployment? When there is disturbing news abroad or at home, it tends to drown out most of the good news.
And of course, the investment implications are not predictable—which is the case all the time, because none of us can foretell how the markets will respond to any particular event or for any particular period of time. As an old Danish proverb says, “It is difficult to make predictions, especially about the future.” But the truth is that the investors who usually obtain the best long-term results don’t attempt to predict the direction of the markets. Part of the reason for this is that they understand that the conflict in Ukraine is unlikely to affect the fundamental value of well-run companies, especially those in the US. Betting on which direction the markets will go is a lot like going to a casino: a few may win big, but the majority will leave their money in the hands of the casino owners. The wisest investors are those who stay out of the casino altogether.
Another way of saying it is that investors usually lose money in the markets in one of two ways. The first is through tax-loss harvesting, which involves strategically accepting losses in investments in order to offset gains in other areas, resulting in tax savings. The second way—all too common, unfortunately—involves emotionally driven selling when markets are dropping, thus turning paper losses into real ones. In past downturns—the pandemic shutdown in 2020 comes to mind—many people locked in losses while more disciplined investors tuned out the noise of the crowd, rode out the declines, and never experienced any losses at all.
We should certainly be deeply concerned for the people of Ukraine who are suffering because of Russian military aggression, and we can also have sympathy for the Russian people who are suffering due to the poor decisions of their leaders. We can and should hope and expect that world leaders will successfully navigate this crisis as they have so many others: world wars, international economic downturns, pandemics, and the like. What we can’t do is predict how the markets will behave in the next few weeks or months. And it should make us feel better to remember that no one else can, either.
At Mathis Wealth Management, we provide coaching and guidance aimed at helping investors focus on what they can control: maintaining proper diversification and allocating assets according to their established strategy and risk tolerance. We believe that over time, the financial markets will exhibit the resilience they have demonstrated for decades. In other words, in this crisis as in others, patient, disciplined investors can expect to be rewarded by favorable long-term results.
If we can provide information or guidance, please contact us.