Election week is always a wild one for the markets. I get lots of messages from people asking what they should do, how the markets will react, or how I see the economy going over the next 4 years.
The answer is that I have no idea.
And, at the same time, I can tell you precisely what is going to happen.
How is this possible?
When considering any information, the most important factor is one that is so often overlooked.
I once had a client who came to our biweekly coaching call with a very big problem.
Her clients were asking for refunds at an unprecedented rate.
She was sure that there was a problem with the program, with her staff, with how they were selling, and was ready to burn the whole thing down and start over.
I pressed a little deeper.
I asked her about her data set.
She told me that this month she had two people ask for refunds in the same week.
I asked her about her normal refund rate, how long she had been tracking it, and how many total purchasers this included.
She went on to explain that she normally only got 6-7 refunds in an entire year, so this meant that there were major problems with the business.
But when I asked her about the rest of this year, she had only had 4 other refund requests (out of hundreds of clients) in the last 12 months.
So while this was her worst week ever when it comes to refunds, it was actually her best twelve months ever, especially given the growth of the business.
Her weekly refund rate was sky-high, but her annual refund rate was down dramatically.
So which one is true? The answer is, of course, both.
But which one is useful?
In case it’s not obvious, the weekly rate isn’t really useful at all, because while two in a single week was startling, it wasn’t a big enough sample size to be relevant to any decision-making process.
The most important factor in how we view anything is time.
From the market to business to politics to self: typically, the narrower the time lens we apply, the more worrisome whatever the thing is, and conversely, the longer view can take, the more useful the data.
So back to the question at hand: what will happen to the markets?
The answer is that they will go up. And then they will go down, perhaps dramatically, and then they’ll go up again.
Over and over.
Will there be another 2008-style financial crisis?
Given enough time, almost certainly.
This is why wise investors like Warren Buffett and Ray Dalio advocate for time in the market rather than timing the market.
Think about it this way: the longer your investment horizon is, the less vulnerable you are to market volatility.
When considering any investment, our first question is often, “What is the best return available?”
But this is the wrong variable to solve for. The question should be, “When do I need access to this money?”
The shorter the period of time, the less volatility is acceptable.
This doesn’t mean that you should structure all of your investments as long-term set it and forget it type investments. There are plenty of reasons to invest in medium-term and short-term strategies.
It just means those things might look different than the long-term ones.
As a guy who writes and talks about finance, people constantly want my opinions on things like what is happening in the market, and they are forever disappointed in my answer.
Because the answer is I don’t care. I’ve structured my life (and my portfolio) in such a way that short-term outcomes don’t influence my decisions.
By the way, this also doesn’t mean I’m impervious to being affected by disasters. I will be sad if I watch the country go through an economic meltdown. I don’t want to see people sufferand I know that my and my wife’s business will suffer alongside the rest of the nation. It might be harder for us for a time as we go through these things.
But the point is, I know that another economic disaster is inevitable given enough time.
So I can prepare now. And when we prepare in advance, it takes us out of reactivity, which in turn comes with a certain calm in the chaos.
This is what it looks like to be unbreakable.
I know a lot of you are hurting this week. It’s been a really tough one for 49% of the country.
I always encourage people to feel their feelings. When you’ve been emotionally involved and it doesn’t go your way, you have to allow yourself to process what is true for you.
But in any event, there are two points:
- The time at which the event occurs
- And the time which you are ok after the event.
And you have the power to choose the distance between the two.
So you can decide how long you want to grieve – how long is appropriate for you. Maybe it’s a day, maybe it’s a week.
But when you choose to be ok, then you can go about the work of becoming unbreakable.
You can begin the work of preparing for all outcomes.
The more prepared you are for every eventuality, the less affected you become by current events.
They start to fade into the background as irrelevant.
This is where true space opens up. When you are impervious to markets, or politics, or anything that makes the 24-hour news cycle, you increase your wealth in two of the most important areas: freedom of time and freedom of mind.
As I’ve written before, time is our only non-renewable resource. With your newfound time, you can spend it with your family, with your partner, with the people you care about, doing the things that you love. Lest you think that I am suggesting you become aloof or callous, you can spend all of this newfound time serving others. You can volunteer, serve on boards, and donate to causes that you care about.
Freedom of mind is the ultimate gift that you can give yourself. This looks like cultivating true inner peace. The less current events affect us, the more freedom we have.
One of my friends has a saying that I love: “No free rent.”
This means that he won’t allow anything to live in his mind that he does not have the power to change.
And so this week, whether you are elated or deflated by the election results, I would challenge you to get back to the work of turning inward and fortifying your inner fortress.
This week your challenge is to evict anyone and anything that is living rent-free.
Stay wealthy my friends,
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