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The View From The Cockpit

By: Frank Armstrong

By: Frank Armstrong, CFP, AIF

Airline pilots and investment advisors both have to re-assure their customers when things go bump in the night.

Back in another life I flew Airbus 300s for the departed Eastern Airlines. While they may appear to be arrogant and cocky, professional pilots have a great deal of concern about their passengers. They would willingly die to protect them. Keeping them safe, comfortable, happy and stress free is mission one!

Turbulence tends to make passengers cranky. So, we spent a fair amount of time avoiding it. But, sometimes it has to be simply endured. All we could do, short of staying home, was to re-assure passengers. No airline could ever guarantee you that you won’t have an occasional bump in your journey. Few trips would ever be completed if the pilot turned around at the first bump.

Pilots expect occasional turbulence. It goes with the territory. Occasionally the air is bumpy. What’s the big deal? The airplane is inherently stable. When bumped it tends to return to its former attitude. The airplane is so strong that several commercial airliners have withstood five to seven times the g forces that they were designed for.

So, when the plane is bumping along, the pilot’s primary concern is usually trying not to spill his coffee. He doesn’t enjoy the turbulence, but besides a concern for his passenger comfort, he isn’t worried.

But, on the other side of the cockpit door things may be different. Most of the experienced passengers will sleep right through it. But, a few passengers see a different world. There they are, trapped in a big aluminum tube, hurtling along at about 500 miles an hour seven miles above the ground! At the first sign of turbulence, anxious glances are quickly followed by wide eyes, and white knuckles. This thing is out of control! It’s going down! The pilot must be insane! Why doesn’t he get us on the ground? Oh, how I wish I had never seen an airplane!

That experience was good training to be an investment advisor. Just substitute investment advisor for pilot, investor for passenger, and market decline for turbulence.

As an investment advisor, I expect an occasional market downturn. It’s built right into the system. I don’t like it. I do every thing I can to avoid it. I try to make it as small as possible. But, sometimes I just have to live with it. Market downturns are not the fun part, but they are business as usual in the financial arena.

Our economy is incredibly strong, stable and resilient. But, markets must go down occasionally in order to function. We accept risk (the market fluctuations) in order to earn the extra returns necessary to accomplish our life goals.

Investors are not necessarily that comfortable with market volatility. They feel out of control, and imagine all the worst possible outcomes. Their version of safety is to chuck it all and seek refuge in cash. Of course, that’s the classic buy high, sell low, and wonder why we don’t make money in the stock market behavior. Investors that panic and follow the herd are unlikely to succeed.

Three or even more years of market decline are not the end of capitalism. We expect events like this to happen. The world isn’t going to end. This baby isn’t going down, and this ship isn’t coming apart. The current downturn will ease, and we will arrive safely at our destination. Now is not the time to turn back or bail out.

So, if the current market has you spooked, sit back, try to relax, and enjoy the ride. We are all in this journey together. I’ll do every thing I can to make it a safe and enjoyable trip. There may be more bumps. But, I’ll do everything I can to get you to your destination in one piece.

Note: I wrote this back in March 2003 at a time when all the talking heads were proclaiming the imminent demise of the stock market. Things had been pretty gloomy for a couple of years after 9/11 and the dot.com bust. The world didn’t end then. As we all know now, the global markets went on to new highs. But, today we are again dealing with turbulence. Most of this is associated with talk that the economy is so strong that the Federal Reserve may continue to push interest rates up. Now, I ask you: Is this a real concern for long term investor?