Markets Do Bizarre Things

Christopher D. Flis |

"Over time, markets will do extraordinary, even bizarre, things." - Warren Buffett in the 2006 Berkshire Hathaway Annual Report

Any equity investor will eventually experience is unavoidable.  Fortunately, in the long-term, the peaks usually end up winning the duel with the valleys.  Of course, no one can guarantee this future result.  However, history has proven that over time, the equity markets are extremely efficient at migrating capital to the most opportune reaches.  And for those who can hang on for the ride, the results can be very financially rewarding.

Staying the course is never easy, especially in the face of what seems like unending down market days.  Please bear in mind, market corrections of 20, 30, 40, or even 50 percent are NOT unprecedented, just as market increases of that amount are indeed possible.  Obviously, angst in down markets generally exceeds that in upward trending markets.  In market years like 2021, we all feel like financial geniuses.  Conversely, in down markets like 2022, sometimes analogies can ground us a bit and assist with appreciating the bigger picture.

My Pet Horse

Some time ago, my wife and I were fortunate to become the owners of a horse.  This is (to us) no ordinary horse.  His name is Jimmy and he is big, very big actually, a bit older, and as therapeutic as any animal can be.  Here is a photo of the big guy:

Unlike most pets, horses cannot be manhandled.  If Jimmy wants to go somewhere or do something, it takes quite a bit to corral him against his better have a big supply of carrots before you start.  I was not there to witness it; however, as I understand it, one day Jimmy was hitched to a wagon, which ended up spooking him a great deal.  To repeat, you can't manhandle a horse.  Jimmy ended up running around the farm with the wagon in tow for quite a while until he was tuckered out.  Fortunately, he was not harmed and to this day lives a very, very peaceful and well-fed life - Memphis heat notwithstanding.  Here is a recent picture of him:

Comparing Recent Market Activity to Jimmy

Right now, it seems as though the World's Stock Markets have been hitched to the proverbial wagon just as Jimmy was.  Similarly, the market is spooked and prices have gone erratically downward, which in turn have made market losses painful to bear.

But just as we had to let Jimmy "run himself out", now is the time to let the markets similarly unfold while avoiding rash, emotional decisions.  Frequently, decisions that are the most emotionally charged - a consequence down markets frequently elicit - usually wind up being quite inopportune in hindsight. 

How to Cope

Looking at red numbers and lower balances is not easy, period.  I have to endure just like everyone else.  Over time, I have developed some techniques that assist me in coping.  Here are a few of them I hope you will find helpful:

Think Long-Term.  The number one suggestion I have to handle down markets is to think long-term.  You have to search very hard to find specific examples of 20 or 30 year negative result holding periods with stocks.  So if you think long-term, which every equity investor should, you will understand that today's intermediate values are inconsequential.  If you need an example of how this works, I bought shares in The Coca-Cola Company in September, 2004.  Though it's been a decidedly uneven march, those shares are worth 3 times what I paid for them back then and have also paid dividends exceeding my basis.  Investing is not easy, though it is also not so complicated.

Hold Ample Cash.  Another suggestion I have is to keep enough cash and on-hand to discourage you from meddling with your long-term investments.  Any funds you need within the next 3-5 years should not be invested in equity markets.  Therefore, if you keep those needed funds in less-volatile commitments, you will be less prone to alter your equity investment strategy.

Play offense in down markets.  I used to land on aircraft carriers for a living.  One of the hardest things to grasp when learning to land on the boat is that sooner or later you have to push the stick forward in order to properly land.  It's somewhat counter-intuitive at first, though once you grasp the concept, your landings dramatically improve.  Buying in down markets is no different...hitting the buy button when it seems the markets are coming unglued is equally as counter-intuitive as pushing the stick forward.  However, if you ask any successful investor, their BEST  buys were made during down markets.

Don't obsess about things you cannot control.  Every market downturn has its "Metric(s) of the Correction".  In 2022, the applicable metrics are inflation and the Federal Reserve interest rate moves.  Anyone reading this is very unlikely to have ANY influence on those two factors.  True, we have to account for them in our borrowing and spending; however, we cannot control - or even remotely influence - them.  So don't worry so much about "The Fed" or "Friday's Inflation Number".  In the long-term, they are much less influential to your long-term results than you probably think.  In the above Coca-Cola example, I have absolutely no clue what the inflation rate was in 2004, nor do I know what the 10-Year Treasury Yield was at the time - who knows, who cares?

Beware of what's popular. The incomparable Value Investor Marty Whitman once wrote, "No one ever got rich buying what was popular when it was popular." If you are following the crowd into investments that have recently experienced rapid price appreciation, particularly if you do not fully understand the investment's characteristics, you should be just as prepared for a very poor result as you are for a stupendous one. I won't pile-on by naming can draw your own conclusions there.


Weathering down markets is never easy.  Down markets bring fear, anxiety, and doubt, which introduce emotion into our decisions.  That natural progression has served humanity well throughout our evolutionary process.  With investing, conversely, this is not the case.  So, we have to train ourselves out of being reactive in the face of financial uncertainty.  Of course, this is easier said than done, so practice.  Eventually, you will train yourself out of it and will see market "corrections" as the seeds of your portfolio's future growth.  And if you want to take a lesson from the equine world, have a look at the video below and see a demo on how to shake off a down market day...