It’s All Noise
by: Jeff Chapman
“You will continue to suffer if you have an emotional reaction to everything that is said to you. True power is sitting back and observing things with logic. True power is restraint. If words control you that means everyone else can control you. Breathe and allow things to pass.” – Warren Buffett
As a financial planner, there are several questions that I get from clients on a regular basis:
Do I have enough life insurance?
Am I at risk of outliving my money?
Is it time to sell? (usually in down markets or after bad news)
However, for a few weeks in late June and early July, these questions were outpaced by one that had little to do with financial planning:
Is Kawhi staying?
Kawhi Leonard is widely considered one of the top five basketball players in the NBA but spent the majority of the 2017-18 season at odds with the San Antonio Spurs.
In the summer of 2018, as he entered the final year of his contract, he was traded to my beloved Toronto Raptors for hometown favourite DeMar DeRozan. Many in Toronto were not convinced that this was the smart move.
On the evening of June 13, 2019, you’d be hard pressed to find any doubters.
That night, the much-maligned fanbase watched as their heroes dispatched a wounded Golden State Warriors team 114-110 to capture their first NBA championship. It was a moment most long-suffering Raptors fans never thought they’d see.
The championship parade route was not even clean before the Kawhi rumours started and it wasn’t long before “Is Kawhi staying?” suddenly became the most popular question of my day.
Much like I do with market volatility questions, I preached patience to friends and clients alike.
As the free agency period progressed, it seemed that a different media source had a different scoop on where Kawhi was heading on a daily basis.
June 27: Sam Amick of The Athletic reports that Kawhi and Jimmy Butler are considering teaming up on the Clippers.
June 30: Chris Broussard of Fox Sports reports that Kawhi is likely heading to the Lakers.
Kawhi is “Lakers to lose,” I’m told. Not done deal yet, but Lakers are his top choice.— Chris Broussard (@Chris_Broussard) June 30, 2019
July 3: Jalen Rose of ESPN reports that Kawhi’s chances of returning to the Raptors were “99 percent”.
Naturally, every piece of news or rumour sent fans of the Raptors, Lakers and Clippers into a frenzy. Even I was not immune to overreacting.
On the afternoon of July 3, Toronto media outlets began reporting that Kawhi was on the Maple Leafs Sports and Entertainment (owner of the Raptors) plane and went into around-the-clock coverage of his whereabouts in the city.
By this time, preaching patience was out the window and even I was refreshing Twitter like a madman and stressing myself out over the potential outcome of Kawhi’s free agency.
At this point, you might have another question for me:
What does this have to do with financial planning?
For basketball fans and investors alike, information is more prevalent than ever and news outlets often have to sensationalize in order to separate themselves from the crowd.
The cost of overreacting to this information is far different.
As a basketball fan, what did I lose by following and reacting to every morsel of Kawhi-related content?
From the end of the season to him eventually signing with the Los Angeles Clippers, the “cost” of all of the Twitter refreshing, group texting and rumour deciphering was a lot of time and an unnecessary level of stress.
Let’s contrast that to an investor in December 2018.
By the close of the markets on Christmas Eve, the Dow Jones was down almost 15% for the month of December alone.
Those investors who read and reacted to articles such as “The Dow is Getting Crushed” may have ended up selling at the absolute bottom of the market while those who ignored the noise and stayed the course were rewarded over the first half of 2019 as the markets regained those losses and then some.
This is where investors can employ a secret weapon of sorts: a financial plan.
This is not to say that everyone who has a financial plan is immune from overreacting and making rash decisions when the market goes south.
A plan tends to act as a GPS of sorts. You wouldn’t dream of driving from Toronto to Los Angeles without using a GPS as the guide to your destination.
Think of a financial plan as your money road map.
It definitely won’t be a straight line from start to finish and regular reviews with your advisor will ensure that you are still on the right track.
Have a plan.
Stick to the plan.
Ignore the noise.
Now, when does Giannis Antetokounmpo become a free agent?