Unruffled serenity. We love that expression. It’s exactly what we seek to bring to our clients – especially when the volume of market noise rises to a roar, as it has in the latter half of 2018. We can’t claim credit for the phrase, though it does pair with our own tagline, Take the Long View®. Both are aimed at detaching emotions from market swings, whether high or low. The long-term view has always sloped up and to the right, but in the short run it’s unpredictable.

Who else can help bring a sense of calm in these times? We point you to Jason Zweig of The Wall Street Journal. Ever since Zweig launched his Intelligent Investor column a decade ago (succeeding the equally adept Jonathan Clements), it’s been far easier to list his few underwhelming columns than the vast majority we’ve enjoyed. His brilliant book, “Your Money & Your Brain” also has a permanent place on our recommended reading list.

As high a bar as Zweig has set for himself, we were particularly pleased by his recent column on market volatility and a behavioral bias known as herd mentality. The article explores a volume of evidence suggesting investors and even portfolio managers are strongly influenced by the “emotional contagion” of their neighbors. This results in market participants in communities, cities and even states mimicking one another’s trading habits, often to their detriment.

“Investors probably behave like their neighbors because gossip, news and beliefs spread by word of mouth,” says Zweig.

His suggested antidote to catching this communicable “disease” strongly reflects our own. Pointing to investment legend and economist Benjamin Graham (Warren Buffett’s mentor), Zweig describes how Graham went out of his way to cultivate “unruffled serenity,” strengthened by “a certain aloofness,” to ward off the constant peer pressure to react to random market noise.

Zweig concludes:

“With markets gyrating, unruffled serenity may become important again. If volatility scares you, spend more time with family and friends who don’t obsess over stocks. You’ll be happier now—and, probably, richer later on.”

At the risk of gushing, I am proud of you. I’m proud, because none of you (our clients) called us in panic or concern when the Dow Jones Industrial Average dropped more than 800 points on October 10.

A friend sent me a mid-day message that day: “Are your phones blowing up? People are losing their minds right now.” My message back: “You know we prepare folks to take the long view. Not one call.” As I publish this post on October 30, the market remains cranky. Who knows what’s in store in the short run? So far, Hill Investment Group clients, I remain delighted over your resolve, your mental toughness, your non-reaction when baited. Don’t get me wrong, I derive no pleasure from watching steep market declines. To an extent, I blame the media pundits. I can barely stomach the way they seize on the short-term gyrations to provide empty explanations. It grates on me to watch them leverage the market’s equivalent of a car crash, preying on our human frailties, knowing full well that fear will drive eyeballs their way. That said, there is rare advice to be mined out of the media. For example, The Wall Street Journal just released an amazing piece by UCLA behavioral economist Shlomo Benartzi, “The High Financial Price of Our Short Attention Spans.” Dr. Benartzi has so much good advice, I’d have to quote nearly the entire article to share my favorite parts. Perhaps this subhead will suffice: “Focus on the most relevant information, not the most available.” Or this: “Your biggest mistakes will come from overreacting to the latest stock swings, not underreacting.” Now, go read the rest (by clicking the link above). One way we strive to keep our clients on course here at HIG when others are “losing their minds” is to remind them of these simple, but powerful lessons:

1. Allocate intentionally. Your asset allocation was a decision we made together, based on the mix most likely to help you achieve your unique goals. Any random day (or month, or even year or few) shouldn’t change that.
2. Diversify globally. Your globally diversified portfolio typically includes roughly 12,000 stocks from the US and beyond. You’re already set to receive appropriate exposure to risks and expected returns from worldwide markets.
3. Rebalance habitually. Rebalancing sounds easy, but it takes guts, and is hugely important. It’s as close as we get to leveraging market moves, trimming high-flying asset classes (selling high) and restoring recent underdogs (buying low), according to your personalized portfolio plans.
4. Take the Long View.® Everything we do is about putting the math on your side. What happens in the short run is tough to predict. But we know what the science of investing says, and we’ve built your portfolio accordingly.

Combined, these four principles suggest that simple discipline may be the most important ingredient of all in becoming a world-class investor. I couldn’t tell you whether we’ve just experienced a random blip or the beginning of a bigger correction. But I am confident that we’ve prepared our clients for either outcome, and nearly any other permutation we may encounter.

Since our Take the Long View® strategy calls for a level-headed mindset and evidence-based rationale, I am disciplined about keeping emotions out of the mix. But sometimes, even I have to vent. For example, my outrage seems well-placed when it comes to exposing dark players who pose as financial “advisors” while they prey on those who can least afford it. When that happens, the real damage is done if we calmly ignore what’s going on.

We work in an industry with an insanely low bar to entry. As I covered in my book, Odds On, I’ve personally witnessed how many of the big-name brokerage firms prize their sales quotas over solid client care and education. In any industry, a convergence of greed and incompetence is ugly. In wealth management, it can be life-shattering.

That makes me mad. Through our own experiences and in speaking with investors, we see the damage done far more often than you’ll read about in the papers. Yes, regulators have been known to levy millions, if not billions of dollars in fines against the worst offenders, but is it working?

Consider this recent article from personal finance columnist Tara Siegel Bernard. It makes me sick to my stomach to read that a “sandwich generation” daughter had to discover her ailing mother’s broker was quietly extracting roughly 10% in annual commissions from Mom’s account (compared to an industry norm of closer to 1%). In financial speak, that’s known as “churning,” or buying and selling just to turn a profit at the investor’s expense.

Worse, at least when Bernard published her piece, the offending broker was still employed at the same firm. The firm’s response? Bernard reports: “In a statement, [it] said, ‘The client agreed to an appropriate resolution of this matter in June.’ The firm said it was committed to doing the right thing for its clients, and was ‘disappointed when any feel their expectations haven’t been met.’”

What a ridiculous response!

Through the years, I’ve heard from many in our industry with their own tales, which sync with my experiences. The common thread is selfish salesmanship. Today there are thousands of independent investment advisory firms, all of whom are held to a fiduciary standard. While even that can’t prevent a criminal bent on malfeasance, it’s a step in the right direction.

Things are getting better, but it’s time more investors start choosing true financial advocates, not just the family relation, nice neighbor or daughter’s affable softball coach. It’s time to fire the entrenched, big-name brokers who don’t have to (and often don’t) represent your highest financial interests. It’s time to lead with questions such as: Is our relationship always fiduciary?

If the answer is anything besides, “Yes, always,” or if the written version is accompanied by an asterisk and a bunch of fancy legal footwork, it’s time for you to say no. You deserve better.

PS: Check out our related press release about Hillfolio, and how we’re working hard to bring “better” to an even wider range of investors.