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The Same Feelings that Empower Your Plan, Can Derail Your Portfolio

This week, Jake discusses the invasion of Ukraine, the economic fallout of Russian aggression and subsequent sanctions, and how despite global turmoil, we must remain dedicated to our process and not take an emotional approach to investing.


  1. Equity Markets – were lower this week with U.S. stocks (S&P 500) down -1.27% while international stocks (EAFE) fell -7.51%.

  2. Fixed Income Markets – were mixed with investment grade bonds (AGG) up 0.81% while high yield bonds (JNK) fell -0.96%.

  3. 3. Ukraine/Russia Conflict Continues – Despite multiple meetings this week between Russian and Ukrainian officials in hopes of agreeing to a cease-fire, there appears to be no suggestion from Russia that they plan to halt their offensive. International sanctions on Russia continue to roll in as global powers seek to sever ties, while rating agencies have already slashed Russia’s credit rating to junk status. As a result, oil prices have spiked to 14-year highs with a barrel of Brent crude hitting $116.
  4. Russian Equities Delisted – As expected, the S&P and Dow Jones indices announced that they will be removing all stocks that are listed or domiciled in Russia from their equity indices effective March 9th – that will also include ADR shares (American Depository Receipts) that trade on the U.S. exchange. The index providers along with MSCI have also announced that they are removing Russia from Emerging Market consideration citing, “the deterioration in the level of accessibility of the Russian Market”.

  5. Key Insight – [VIDEO] This week, Jake discusses the invasion of Ukraine, the economic fallout of Russian aggression and subsequent sanctions, and how despite global turmoil, we must remain dedicated to our process and not take an emotional approach to investing. [ARTICLE] Market volatility feels like mortal danger and all though it will only continue and deepen resulting in our financial ruin, the reality is something quite different. We discuss feelings more this week, including where they are important to our process here at TEN and where they are not, as well as what history has to say about how you should feel about volatility.



Last week I talked about Fading One’s Feelings and given the still heightened state of investor tensions thought we should explore that a little more, but also discuss some facts that likely get lost in typical discussion.

First and foremost, feelings matter a lot and especially to us here at TEN Capital. We talk a lot about not just getting the “math” right, but also the “emotions.” Which is why we put more time and action into it than any firm I know with things like:

  • Our initial Cornerstone Conversations where we spend time upfront helping clients uncover their primary objectives and really getting to know them as advisors,
  • In-house written/produced weekly commentaries to keep you informed, and
  • Over 30 client events a year from those purely for relationship building to our informative Lunch & Learn series.

All of these are about recognizing the importance of behavioral finance and relationships by putting in the actual effort and expense to show how much the topic, and you the client, mean to us.

The KEY distinction is, engaging one’s feelings can add tremendous value with regards to making the decisions that shape one’s financial plan and goals, just NOT their portfolio.


With respect to planning, the right process (like ours) is to engage one’s feelings to define goals and tradeoffs and then mentally prepare for what it will take to achieve them. Clients will have the necessary framework to make better financial decisions and adapt as life changes, with less risk of falling prey to short-term thinking.

However, with respect to investing, the tough reality is that virtually all people are literally physiologically wired to be bad investors due to the fact that volatility gets processed in the same part of our brains as mortal danger. In calmer moments we can understand the number of differences.

  • Market volatility is common and natural, being in mortal danger is not,
  • A “tough” monthly statement is not the same as death,
  • Investing has proven to have many positive outcomes historically if done prudently, while repeatedly placing yourself in mortal danger does not, etc.

But again, the issue is it isn’t logical, it’s emotional.

The reason so many investors fall so short of the long-term returns they should experience is because of their feelings (see Vanguard’s study which highlights the impact of behavioral coaching at https://www.vanguard.com/pdf/ISGQVAA.pdf).

In short, we are absolutely here to be understanding of your feelings and fears and address them within the context of a sound plan, but we are not doing our jobs as the study above highlights if we allow feelings to dictate short-term investment decisions.

Unchecked Feelings Lead to Failures

Nobody felt like buying last Tuesday/Wednesday when things were on sale (this is the overwhelming sell volume), but many felt differently and bought up the market on Friday … after it was up 10% from its recent lows! That’s hardly a successful investment decision.

In the midst of volatility and market fears, one almost always feels like it’s only going to get worse and the accompanying nightmare scenarios begin in earnest in many an investor’s mind. The reality is that most corrections don’t last that long, and almost always present good buying opportunities.

Goldman Sachs touched on this topic noting that, “The S&P 500 entered correction territory last week, falling 10% from its high on January 3rd. Escalating tensions between Russia and Ukraine primarily drove the decline, as markets digested potential geopolitical, economic, and financial implications. Historically, buying the S&P 500 Index at 10% below its high has generated a median return of +15% during the next 12 months. In our view, investors might not need to wait for a trough to earn positive returns.” (See chart below).

Genuinely reflect on the fact that there is almost always someone somewhere warning you about risk, a conflict in the world, a market that is experiencing volatility, etc., and yet allowing those things to chase you out of being an investor is wrong FAR MORE OFTEN than it would be correct, and absolutely wrong for a diversified investor over any real length of time.

The next chart illustrates this beautifully. It’s a 70+ year look back, and as you’ll see from all the blue bars there are A LOT of corrections over the years. What’s important to remember is that every one of those corrections (blue bars) came with fears, scary headlines, and plenty to worry about. And yet, as you’ll see from the light blue line below them, for those that didn’t panic, there was a lot of money to be made and with time, most corrections appear as nothing more than a meaningless bump (I’m looking at you 1974).

Someone somewhere is saying “this time is different.” Whether used as a justification to chase an investment or to abandon time-tested investing truths during market volatility, employing such sentiment to guide your investing is one of the great mistakes that continues to derail investors time and time again.

Why the resiliency of markets?

Markets are resilient because people are resilient and innovative and therefore the companies they create and/or work for are also resilient and innovative. Like the market, people’s spirits may rise and fall, but both ultimately wake up one day and rise to meet the challenge.

What this means to me is just like there is always a reason to fear, there is also a reason for hope and the latter has proven time and time again to be the right horse to bet on.

Speaking of some good news.

Our partner First Trust continues to hold to their view that, “the message from our Capitalized Profits Model hasn’t changed. The cap profits model takes the government’s measure of profits from the GDP reports, discounted by the 10-year US Treasury note yield, to calculate fair value. Corporate profits for the third quarter were up 19.7% versus a year ago, up 21.2% versus the pre-COVID peak at the end of 2019, and at a record high. Utilizing a historical average for the 10-year yield, of 2.50%, all it would take is profits 3% above the level in Q3 for our model to estimate fair value at 5,250, which is what we projected for the end of 2022. We think equities are likely to rebound from recent strife and work their way higher this year. The bull market in stocks won’t last forever. But, for now, it isn’t at an end.”

Expressing similar positive sentiment, particularly to address investors’ inflation concerns, JP Morgan expressed their view that, “For U.S. consumers, this crisis is likely to dampen sentiment and has the potential to delay peak inflation. Despite these headwinds, Americans are coming into this at a fundamentally healthy position – consumer demand has been robust (i.e. January retail sales surprised to the upside despite Omicron concerns) and consumer balance sheets have been strong. While we might see price pressure on energy and food in the near term, they do not have the same capacity to shock as they once did. As illustrated in the chart, energy and food spending now represents much less of Americans’ overall wallet share – 12% of total spending vs. an average of 23% throughout the 60s/70s. Furthermore, America has a greater degree of energy independence and the luxury of natural resources that Europe does not, which should also soften the blow.” They too conclude, “In terms of investment implications, remember that staying invested in a diversified, goals-aligned portfolio has paid off through countless geopolitical crises and should continue to do so.”

Lastly, it is important to note the current reality for the greatest factor on stock prices over time corporate earnings. Per Goldman, “US earnings results have so far proved resilient in Q4 2021, outpacing consensus estimates. With 84% of companies having reported, 52% have beaten earnings estimates by more than one standard deviation, above the historical average of 47%. In our view, earnings growth will continue to normalize, but stay supportive of valuations, and deliver 8% EPS growth for 2022.”

In Conclusion

You feel conservative, worried, fearful, cautious, “fill in the blank emotion” because we are wired as people to hate losses twice as much as we like gains, and to react to them as though our life depended on it. And while such feelings are completely natural and do need to be addressed, it is important to call them out and remember that market volatility may feel like mortal danger, but it isn’t.

Furthermore, what we feel like doing in those moments is almost always wrong.

The bad news is there is little to nothing you can do to change how you feel, but you can build a plan and find a partner to help change how you react to create better results as the Vanguard study above highlights.

The difference between the two paths is literally the results you hope to see for you and your family.

Have a wonderful weekend,

Tim and the team at TEN Capital

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