Your Mental State After Five Days

Correction
Dow Friday August 21st: 16,459
Dow Friday August 28th: 16,643
Performance: +1%

Dow

Last week was some of the five craziest trading days ever. Just by reading the news headline you would have thought the whole world was falling apart again. But guess what, the market closed a little higher (yea). Your portfolio might be flat, but your brain and emotions just got beat up. Imagine if you happened to be on vacation that week, you would have thought that not much happened in your absence. You would have thought “oh, Dow was slightly up 1%, just another normal week, looks like nothing exciting happen”.

These roller-coaster ups and downs can really take a toll on you. Managing the mental ups and downs is more important than trying to manage the market’s ups and downs for most investors. Above average volatility is emotionally taxing. What you don’t want is permanent capital impairment. Permanent capital impairment, not volatility, is the big risk in investing. Volatility isn’t risk unless you have a short time horizon. I believe as long you can ride out the waves, and that your valuation assessment is conservative, then you should do fine in the long run. I recently wrote an article, Keep Calm and Carry On, that provides a reminder in turbulent times.

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