Dear Mr. Market:

We always chide you for having such a volatile temper. Your unpredictability is both alluring yet often makes the most intelligent person seem like an imbecile. What’s your next move? Who will you reward in 2020 and who will you punish?

As an investor, it’s always hard when the market is volatile. Do what you must to relax – deep breathing, a nice long walk, maybe yoga. Try to ignore the talking heads on the financial news channels. You’ll get through this. Now is not the time for rash action based on emotion.

What’s that you say? You’re not worried? Hasn’t the market been up nicely for the last year?

Of course it has, and that soothed a lot of the fears stock investors had coming off a rough end to 2018. But it actually has been volatile. It’s just that upside volatility naturally feels a lot better than downside! However, both can lead to bad decision making.

Think about how you feel as an investor today, as compared to a year ago. Odds are that last year you were questioning having too much stock exposure, and now you may be wishing you had more. Both extremes can be dangerous. Imagine you gave into your fear during the late 2018 correction, and lightened up on stocks “just to wait for more clarity,” or something along those lines. The S&P 500 zoomed out of the gates in early 2019 and was up over 20% by the end of July! Then it finished up better than 30% for the full year. Giving in to fear and waiting for clarity would have kept you from participating in that upside.

Now imagine you were a disciplined investor, following an asset allocation plan for the long-run. Say your target is 70% stocks / 30% bonds, and you (or your advisor) rebalance toward that allocation at set intervals or deviations. After December 2018, you (or your advisor) would have taken money from bonds and added to stocks, since the 70/30 balance would have been out of whack. Yes, you would have added to stocks during a period of high uncertainty! In hindsight it would have looked like a great timing move, but in reality it would have been simple discipline.

That brings us to today. The market has been up and worries seem low. Likely your stock allocation has gotten out of whack again, but this time to the upside. What is the prudent investor to do? Again, ignore emotion and follow your plan. If this means selling stocks to rebalance, so be it. Maybe your gut says, “let the winners keep running.” You could do that, but ask yourself how good your gut has been at timing the market in the past.

From an investor psychology standpoint, staying disciplined when things feel comfortable can be a good exercise for when the market inevitably goes a little haywire. Warren Buffett is credited with saying, “Be greedy when others are fearful, and fearful when others are greedy.” Good advice…but if you focus more on discipline than market timing, your decision-making will not be driven by either extreme.