A short lesson from a statistical study of professional soccer goalie behaviour and success might provide perspective. A study of goalie reactions in fending off penalty kicks yielded the following results:
- diving left-the goalie tends to stop only about 30% of the balls
- diving right, the goalie stops about 25% of the balls
- Staying in the center (not diving left or right ), the goalie achieved an estimated 60% successful saves
So what do goalies do? 94% of the time they anticipate the location of the shot and dive left or right, as inaction “feels wrong” even though they know they are hurting their odds of saving the ball. Sometimes inaction is the right decision and the very hardest one to make in soccer and in investing!
In the face of global uncertainty, what is an investor to do? There are three possible reactions:
- Take all or part of your money and move to money market or conservative investments. This action suggests your risk tolerance has changed or was overly aggressive in the first place. If you take this action, make sure you are not cheating yourself on longer term returns in reaction to short term market variability.
- Take all or part of your money and move to more aggressive investments. This action suggests your risk tolerance has changed or you are ready and willing to attempt to profit from temporary market disequilibrium. If you have active managers in your fund, this may already be happening inside your portfolios, unless you are passively invested, so it may be redundant to change your strategy to a more aggressive one. First, talk to your advisor about what you already have in your portfolio.
- Recognize short term volatility for what it is--an ongoing part of the ebb and flow of markets and stay the course with your investments, knowing the underlying investment managers and advisors are looking at the enhanced valuation differences to add returns to your portfolios.
We encourage you to look at your long term financial goals with your investment specialist and avoid the temptation to dive left or right and decrease your personal odds of long term financial success!