I still have vivid memories of my first market decline when I was working as a stockbroker. For the first two years of my career, nearly everything I recommended was going up. I was proud of the value I thought I was providing to my clients and impressed with how smart I was.

By 1969, the Dow Jones Industrial Average was getting close to an all-time high of 1,000. Then it started to decline and just kept going down. It eventually dropped almost 40%.

The situation hit me hard. I felt so bad about the losses my clients were experiencing that I couldn’t sleep and had stomach problems. To make things worse, a lot of my early clients were friends of my parents. When I would go home for a visit, I would call ahead and ask my parents to move their car out of the garage so I could park there and close the door behind me. I didn’t want my parents’ neighbors to know I was home because I couldn’t face questions about why their stocks were doing so poorly. I really didn’t know what to say because I didn’t have an answer. It was during this period that I spent one afternoon hiding out in the movie theater watching a Clint Eastwood triple feature!

Eventually, I went to my manager and asked for advice: What can I do? What should I say? He was surprised by my questions and responded bluntly with, “Keep trading stocks.” That was my job, after all. We were brokers, not financial advisors. We were paid to trade stocks because trading created revenue for our firm whether the stocks went up or down in our clients’ accounts.

Then he added something that turned out to be good advice for me. He said that if the market decline was bothering me that much, I should quit my job and go work in a bank trust department. He was right. I wasn’t interested in selling stocks to help a firm make money whether or not my clients won or lost..I left my brokerage job shortly thereafter.

Obviously, I’ve experienced many more market downturns since that fateful time…because that’s simply what the market does. We just can’t accurately predict when. In fact, there have been 10 times when the market declined more than 20% in the past 50 years—with the two most recent happening in 2007-2009 (down 55%) with the financial crisis and in March 2020 (down 35% in 21 days) with the COVID-19 pandemic.

Lesson Learned: Expect that the market will decline and ignore it when it does. 

History shows that market declines are inevitable—higher equity returns wouldn’t be possible without the risk of occasional downturns. Also, market declines are temporary. When you remember these two facts, you’re less likely to let your emotions get in the way of your long-term investing strategy. After all, a loss isn’t a loss until you sell your position.

Of course, ignoring market downturns is easier said than done. I admit that I still feel anxious during these periods, and I know that many investors experience the same sleeplessness and pit-in-the-stomach sensations I felt back in 1969. Today, though, I’m not afraid to face my clients when the markets are bad.

Instead, I like to initiate calls during these rough periods just to ask how they’re feeling and to give them better advice than I could have 50 years ago. Instead of recommending new stock trades, I tell them to do nothing – except the occasional rebalance. This downturn, like others before it, will pass.

Also, I’ve learned, and communicated to all that will listen…especially our clients…to focus on what you can control. The market is not controllable. Your investing philosophy, asset allocation, and personal spending and savings are in your control. Focus your attention, energy, and actions there. And leave the rest to us.

Earlier this month, the entire Hill Investment Group team spent an inspiring afternoon touring the world-famous Anheuser-Busch (AB) brewery in St. Louis. Why? We are always learning and have drawn myriad lessons from the way AB continues to set the bar for excellence – for product craftsmanship, knowing their client, and being a pillar of the community. Did we mention the attention to detail, timeliness, reliability, data and evidence, and hospitality? And, fun fact, both Rick Hill and Buddy Reisinger are former “Miller killers” themselves.

When Rick and I set out to form a brand new firm more than 15 years ago, we drew inspiration from AB, as well as other examples of excellence. Some of our clients may catch the subtle nod in the photo above to our founders’ vision: that Hill Investment Group should feel to clients like a combination of The Four Seasons Hotel and Cheers!… where everybody knows your name.

If you’ve never been to our world headquarters in St. Louis, we’d love to host you on a tour of our offices…yes, we’re open…and invite you to experience our hospitality!

My excitement about investing led me to pursue a role as a stockbroker in Philadelphia right after I completed my MBA. Back in the late 1960s, almost no one bought mutual funds. As a broker, I made recommendations to my clients about which stocks to buy. Then, the trend was to bet big on the next ‘winner’ – not too dissimilar from today’s speculation around cryptocurrency.

As a young broker, I had worked hard to save $3,000. I was ready to invest my money the same way I invested my client’s money. I looked over the recommended stocks list, researched, and narrowed my options down to two companies. One was a mobile home company, and the other was an airline that delivered oil drilling equipment to Alaska’s north slope.

Both stocks were selling at $30 a share. With my $3,000, I could buy a full lot (100 shares) of either one. The airline stock had a more exciting story, so I bought that one.

I watched both stocks closely over the next several months. Unfortunately, the airline stock took a severe nosedive, falling to $3 a share, a whopping 90% loss, while the mobile home stock doubled to $60 a share. After many agonizing days, weeks, and months, I sold my airline investment for $300, suffering a loss of $2,700.

With my annual salary of $9,000, my finances took a significant hit. I just blew up my nest egg! I kicked myself for not buying the mobile home stock and earning $6,000 – a net difference of $5,700! That much money could have changed my life. I could have bought a nice car, taken a European vacation, or used the money for other exciting adventures. Regret reigned supreme. Mainly I questioned why I didn’t split my investment by buying 50 shares of each company – at least then I would have spread out my risk.

Lesson Learned: Diversification can help you get better results with less stress.

Diversification is a way to spread your risk, increasing the chances of your exposure to potential winners; a way to own the haystack rather than searching for the needles. Also, different countries and sectors perform differently at different times – it’s almost impossible to predict when each will have its day in the sun. If you are deeply diversified, you increase your chance of owning the winners, and at the right time.

Back then, I would have told you I was investing. With the wisdom that comes with age, I now know that I was gambling. Why? I put all my eggs in one basket by betting on one company. Also, even though the insight helped me learn my lesson, I would never call buying two stocks proper diversification. Today, our clients have access to expertly-designed mutual funds that make it easy to own around 13,000 stocks from around the globe. A strategy that is much better than betting on one airline!

I was lucky to learn early on that – both financially and emotionally – diversification deserves a key place in any long-term investment strategy. No one can accurately predict which investments will win and which will lose, and take it from me, you can drive yourself crazy watching to see whether your bets are going to pay off.

Don’t want to wait for the next lesson, set up a time to talk here.