March Madness is a great event for any sports fan. Thursday and Friday are filled with games throughout the entire day. Fans fill in their brackets with the mentality that this year’s bracket is going to be much better than the previous year. Then the games begin and the upsets start rolling in. We see 14 seeds upset 3 seeds and 10 and 11 seeds begin to make the Sweet Sixteen. This year already we have seen Dayton drop Syracuse, Stanford beat Kansas, Harvard beat Cincinnati and our own Mercer Bears beat Duke.
The uncertainty that surrounds March Madness is what makes it fun. The joys we get when one of our upset picks delivers, the disgust we feel when one of our Final Four teams exits the dance early. And then the gut wrenching feeling we have when our chosen champion falls out of the tourney early (which is my feeling right now).
Through the entire tournament and the roller coaster of emotions, the root cause of our reactions/feelings is due to the uncertainty that surrounds the tournament.
I think that this feeling towards uncertainty is the same for any situations that are clouded with uncertainty.
Anxiety may be another feeling that is felt when we are uncertain, but we all tend to become reactionary as well during these periods of time.
During her first press conference as Fed chairwoman, Janet Yellen mentioned the Fed’s intention to raise rates sooner than many investors believed. Talk about creating a cloud of uncertainty, Yellen did this in just a couple of sentences.
The initial reaction was not a good one and this can be somewhat attributed to the uncertainty that Yellen brought with that one comment.
Investors know that rates are going to have to rise again and the punch bowl will have to be removed. Having to continue to guess when that will be will cause even more uncertainty. Investors were already guessing when it was, now that Yellen has mentioned it again, investors worry that their initial guesses are now way off.
The reactionary moves will become even more prevalent when data comes out that may prompt the Fed to act sooner. This has already begun but could become even more of an issue as the months wear on.
The Fed has wanted to be more of an open book as the years have gone by. There is not a doubt that this (along with the speed of receiving information) has caused more volatility in the markets.
So, as investors, we have to accept this volatility. And rather than being reactionary, we should look to be proactive with portfolios. I have constantly said this, but preparing portfolios to meet goals and objectives from day one will help limit the desire to be reactionary on days like last Wednesday.
The two main goals that investors will likely have should not be impacted by short term volatility. The first goal of long term growth should not be bothered by short term volatility because their strategy is not impacted by the day to day, rather by the year to year. Income investors should not have to worry about the day to day fluctuations because the income being generated should not be affected by short term volatility.
Volatility is a short term effect of uncertainty, investing success though is an outcome of a long term vision utilizing diversification.