SCOTT REED: An emotional response could impact future results

By Scott Reed

We have barely gotten through one of the biggest events in my lifetime. I am still a bit overwhelmed. When I see people around town, they seem to be trying to figure out what to do next. They seem confused by this new world.
Everything looks different now than it did before. Some are scared, some are excited and some seem to just want to stay home, hunker down and wait until things look more normal before venturing out into the world again.
That’s what happens when you have the largest snowfall in a quarter of a century. I, for one, am excited. I don’t believe that this is a new paradigm. I believe that this is an anomaly. I believe we are lucky and we need to take advantage of the snow while it is here.
I am lucky that most of the work I do can be done from my home, so I am staying home as I write this so I can make frequent trips to help with snowmen, sledding and whatever else we can find to do in a half a foot of new fallen snow.
The interesting thing to me is that I haven’t talked to a single person who thinks we are seeing a major shift in weather patterns which will change the way we think of winter in the South for years to come. Even after two major events: our current snowfall, the most in a quarter of a century, and our Christmas Eve and Christmas Day snowfall, which is far rarer. No one I have talked to is worried about the long-term consequences.

Different with investments
That’s just not true when it comes to investments. We have just come through the second-worst bear market in history. It was defined by the fact that a meltdown in the credit markets caused the meltdown in the securities markets, which doesn’t happen often.
As a matter of fact, it has happened only two other times since the mid-1800s. The last time was the start of the Great Depression in 1929. Do the math and you will find that we are on track to have a major credit crisis about every 75 or 80 years. I find it oddly comforting to think that virtually all of us will be dead by the time the next credit crisis comes around if everything stays on schedule.
Why do we act so differently to these two very rare events? I would venture to guess that the main difference is the fallout from making a mistake with your investments is so much more severe.
When making a mistake could force you to work more years before you retire, sell your house at the lake or force you to take out a larger loan for college, it becomes an emotional affair. And therein lies the problem: We don’t make very good long-term decisions with the emotional part of our brain.The emotional part of our brain tells us to do something even though more often than not doing nothing could be much better for us.
When dealing with the idea that Tupelo, Miss., has become the new Aspen, Colo., the brain may tell you it is time to buy sleds and snow blowers before the next big snow of the year. But your brain will eventually succumb to reason, maybe because the consequence of not having those things if it snows again is not so bad.
With your investments it is much harder to force your brain out of emotional mode and into making a rational and reasonable decision. It is harder still because no one sells papers, magazines or television shows by telling you to do nothing. So you are inundated with so-called experts who are trying their hardest to make you believe that you have to do something.
My suggestion is if you are in the South and you have snow, go outside, make a snowman, take a picture and put it on your refrigerator. Then every time you feel the urge to do something emotional with your investments, stare at the picture on your refrigerator for a couple of minutes and remember the snowstorm of 2011.

Scott Reed, CIMA, AIFA, is CEO of Hardy Reed Capital Advisors in Tupelo.