Financial markets are integral to our lives and the global economy, yet they are susceptible to occasional, dramatic downturns known as market crashes. These turbulent events, while daunting, also serve as invaluable lessons for investors.
In this article, we unearth the educational nuggets hidden within these financial upheavals. We explore their inevitability as part of the economic cycle, the crucial role of emotional control during such periods, and the importance of practical strategies for risk mitigation and financial resilience.
By understanding these elements, we can better navigate market crashes, transforming them from financial nightmares into opportunities for growth and learning. Let’s dive in and discover how to turn these challenging events to our advantage.
Market Crashes: A Natural Part of the Economic Cycle
Market crashes are not a random occurrence or a sign of uncontrolled chaos, but an integral part of the larger economic cycle. This cycle, with its peaks and troughs, is a natural phenomenon in the financial world and has been recorded since the inception of organized commerce.
In the early 18th century, for instance, the South Sea Bubble stands as one of the earliest instances of a market crash. Investors were drawn to the supposedly lucrative trade opportunities with South America, leading to a massive bubble in the stock of the South Sea Company. When it became apparent that these opportunities were overestimated, the bubble burst, leading to a devastating crash.
Fast forward to the start of the 21st century, and we saw the Dotcom Bubble burst. The advent of the internet led to exuberant investing in internet-based companies, many of which lacked a solid profit-making model. When investor sentiment shifted and the reality of these companies’ financial health came to light, a substantial market crash ensued.
The most recent significant crash as of this writing was the Global Financial Crisis in 2008. Triggered by the subprime mortgage bubble in the United States, the ripple effects of this crash were felt across global financial markets. Each of these instances, although unique in their causes and impacts, underlines the inevitability of market crashes.
Understanding this inevitability prepares investors better for the eventual downturns. This knowledge allows them to plan and strategize, taking into account the potential for a market downturn. Strategies may include diversifying their portfolio, setting aside a contingency fund, or planning an exit strategy in case of a sharp market decline. Being prepared doesn’t mean one can prevent a crash, but it does mean that they can mitigate their personal financial risk and potentially safeguard their investments to an extent.
Therefore, acknowledging and understanding the inevitability of market crashes is the first step in learning how to navigate them. It lays the foundation for the rest of the lessons we can derive from these financial downturns, each of which contributes to a holistic approach to investing.
The Importance of Controlling Emotions
Accepting the inevitability of market crashes leads us to the next crucial lesson – mastering emotional control in the face of financial turmoil. The turbulence of a market crash often incites panic and fear, and these emotions can severely cloud our judgment, leading to impulsive and potentially harmful financial decisions.
The bridge that connects the inevitability of market crashes to strategic principles like diversification and liquidity management is, in fact, emotional intelligence.
Emotions and the Financial Markets
Market crashes can be nerve-wracking. As values plummet, fear and panic can push even seasoned investors to make impulsive decisions, such as selling off their stocks without a careful evaluation of the underlying value of their investments.
History is littered with instances where emotional reactions exacerbated market crashes. The Wall Street Crash of 1929, often cited as the most devastating stock market crash in the history of the United States, was, in large part, driven by panic selling. This example demonstrates the destructive potential of emotions when not managed correctly.
Controlling Emotions Amidst Market Crashes
Controlling emotions during a market crash does not mean ignoring or suppressing fear and panic; instead, it means managing these emotions to make sound financial decisions.
This emotional discipline can be cultivated through strategies such as having a well-thought-out investment plan, sticking to your plan despite market fluctuations, avoiding herd mentality, and maintaining a long-term perspective.
Harnessing Emotional Control: Three Concrete Investment Strategies
Recognizing the inevitability of market crashes and mastering emotional control paves the way to effective investment strategies. By keeping emotions in check, we can better steer these strategies – namely portfolio diversification, maintaining healthy cash reserves, and aligning investments with future liquidity needs. Here’s how:
- Portfolio Diversification: This strategy reduces the risk of severe losses during a market crash. A well-diversified portfolio is spread across various asset classes, sectors, and geographical regions. When some investments perform poorly during a crash, others might be faring better, cushioning the overall impact on your portfolio. This balance can provide reassurance that a market crash won’t wipe out your entire portfolio, thereby helping to alleviate feelings of fear and panic.
- Maintaining Healthy Cash Reserves: A solid cash reserve serves as both a financial and emotional safety net. Financially, it allows you to cover living expenses and seize new investment opportunities that a market crash might present. Emotionally, knowing that you have a safety net can help reduce the feelings of panic and fear that often accompany a market crash. This emotional security allows you to make calmer, more rational investment decisions during turbulent times.
- Aligning Investments with Future Liquidity Needs: Proactive investment planning involves aligning your portfolio with your anticipated future liquidity needs. By planning for upcoming financial requirements, you reduce uncertainty and the associated emotional stress. This foresight allows you to navigate market downturns confidently, knowing that your present and future financial needs have been accounted for.
At the heart of these strategies lies emotional control, which bridges the inevitability of market crashes with effective investment planning.
It helps form the bedrock of a resilient investor who not only survives market downturns but also possesses the potential to turn them into opportunities.
Have a great weekend!
Source: Ballentine Capital Advisors
Golf Tip of the Week
9 Things I Learned From Players at The U.S. Open
U.S. Open week started with Johnny Miller explaining how he taught himself to swing a golf club. It ended with Wyndham Clark explaining how he taught himself to swing a golf club.
It’s funny how things like that work. Though, perhaps, it shouldn’t have been too surprising. It was a minimalist week all around at Los Angeles Country Club. There were fewer fans. Smaller grandstands. Less rough. Lower scores. In many ways, it makes Clark and his understated approach to the golf swing the perfect champion for the place.
Clark has one of those golf swings which makes the rest of us wonder how he could ever hit a bad shot. A big backswing turn, and uninterrupted body turn on the downswing, and a follow through which wraps the club loosely around is next.
Like the sultry swing of Nelly Korda, Clark is the child of a professional tennis player. You can always tell the best athletes by the smoothness in the movement in the connection between body and club. Like Korda, there’s no buffering in Clark’s move. It’s automatic.
Except golf swings don’t work that way. Hitting a golf ball straight is like sending thread through the eye of a needle. No matter how good you get, it never becomes easy. The only way to move the golf ball exactly the way you want is to not touch it at all.
Clark’s swing looked good, but his shots didn’t. He had no idea where his ball was going, or why. The more explanations from experts he heard, the more confused he got. It sent him down a delightfully simplistic path.
“Now, when I’m in practice, I’m always trying to get back to neutral. If one day it’s really cutty I’ll hitting huge draws on the range. Then some days it gets kind of too draw-heavy I’ll hit huge cuts and get it back to neutral,” he says. “I felt like I’ve kept my swing in those parameters to where regardless I can play good golf if I’m hitting a little draw or a little cut.”
Clark was backing into a method with some good science behind it.
The human brain works on feedback, and it uses that feedback to set up boundaries to stay within. Just as driving between the lines only makes sense when there are actual lines on the road, your brain only knows what to do when it knows what not to do.
Take note. The next time you’re on the range, try hitting a duck hook. Then try hitting a wipey slice. Then try hitting one straight. Yes, you’re good enough to try. And I bet you’ll like the results.
1. Speed is fun, but boring is best
There aren’t many players other pros will stop and watch, but watching amateur Gordon Sargent hitting balls on the range earlier this week, pros couldn’t resist taking a lot. Sargent is a lean six foot with a mean 125 mph clubhead speed. When he completes the formality of turning pro, he’ll instantly become one of the longest players on tour.
Gordon has the kind of whipping speed that his fellow U.S. Open contenders would spend a not-so-small fortune to have themselves. But of course, you always want what you can’t have. They may envy his speed, but after his final round I asked Sargent: What does he envy about their games?
“They limit their mistakes really well,” he said. “They don’t really hit it out of position too often, and if they do, they just get it back into position. The leaders aren’t making doubles out there, and that was the key. Consistency; limiting the mistakes is what I envy in their games and what I’m trying to get better at.”
2. The safest play isn’t always the smartest
Speaking of getting back into position; throughout the tournament, I found myself thinking about the difference between playing safe, and playing smart. There’s a decent amount of overlap between the two, but the safest possible play isn’t always the smartest one.
Rory’s second shot on the 14th hole struck me as a more-safe-than-smart moment, but the sixth hole was another flash point for this idea. The players who went for it had a lower scoring average, more birdies on average and fewer bogeys than those who didn’t. Yet more players laid up than went for it. Tony Finau was one of those players who laid up all four days on the sixth. How come?
“They kind of just give you the fairway on that hole,” he said.
Laying up is certainly a more predictable way of playing that whole, and there’s a certain comfort in that. Going for it is messier. You don’t know what chip you’re going to have, or from what angle, or what the lie is going to be. But it’s worth it. Go for the sixth green all four days, and you’ve made up almost a stroke over the rest of the field.
Yet it was the lure of safe predictability that lured many players away from making the statistically correct call on the sixth hole last week. It’s a trap we all fall into from time to time. Even those playing in the U.S. Open.
3. Work on your body, not just your swing
The U.S. Open was the first time I ever got to watch super-bomber Wilco Nienabar hit golf balls. It was an impressive sight. Golf shots sound different when pros hit them. And his shots sound different from his fellow pros.
After launching a few drives over the next at the back of the range—some 330 yards away—I asked Nienabar how his speed came to be.
“I spent the winters in South Africa playing every other sport,” he said. “Rugby, football, cricket. Then when I came back and played golf in the summertime, I could move better.”
Playing other sports is better advice for junior golfers than adults. Golf is my way of playing sports. But I think there’s a lesson to learn from Nienabar nonetheless: That amateur golfers sometimes think the only way to get better is to tinker with your swing. But often it’s getting your body more flexible, strong, and generally more mobile that will pay greater dividends. Better yet, it’s some of the easiest stuff to work on.
4. Pros are so good from the fairway
The way pros picked apart Los Angeles Country Club was a hit for the width and angles crowd—that’s the idea that a golf course can be both wide and difficult for pros, because wider fairways allow players to pursue different but equal strategies.
There’s truth there, of course, but at least part of where we saw this idea fall apart at the U.S. Open was the unintended side effect of handing players wide, relatively defenseless fairways.
Wyndham Clark was not pursuing an angle when he sliced his drive on his 72nd hole, but found the fairway anyway. It’s just one example, but a high profile one which illustrates how the wide fairways last week screwed up the good-shot, bad-shot feedback loop. Clark hit a bad shot into a good lie. And good fairway lies are all pros need to attack greens.
“Yes, but only when the greens are this soft,” Keith Mitchell, who was a fan of LACC, said in response to that.
But keeping the greens on that razor’s edge is the problem. They may be the perfect amount of crispy at the start of the week, but spiral out of control after a few hours of sunshine. It all works at the Open Championship because of its laissez-faire attitude. The character of that year’s Open is whatever Mother Nature dictates.
Like it or not, the majority of golf fans want the U.S. Open to operate with a heavier hand, which means giving every inch of it some teeth.
5. Speed control on the greens is more important than you think
I can feel myself getting a little long winded, so I’m going to buzz through the rest of these. Plus, I’m writing this article from an airplane, and that airplane is about to land. A true test of writing-on-deadline if there’s ever been one.
On the 13th hole on Saturday, Rory McIlroy had a long birdie putt from the front of the green to the back. As soon as he hit it, he didn’t like it.
“Hit it!” he said forcefully in frustration, as he marked his ball about six feet away. He missed the next putt.
After his final round, McIlroy pinpointed his speed control on the greens as the primary issue. If there’s one area of the game where the rest of us don’t think about enough, it’s speed control.
Three putts come from bad speed control. Usually on the first putt. Missed short putts come from bad speed control. Usually from powering it through the break. Making putts is hard, but dialing in your speed control will make life on the greens so much easier.
6. The pivot powers your swing
A quick note on Ryan Gerard, who popped into the early U.S. Open lead for a moment on Thursday, and made the cut on Friday. He’s got an unusual swing. Sort of a mix between Zach Johnson and Jon Rahm.
It’s the kind of swing that many coaches would’ve changed the moment they saw it. And honestly, for good reason. Most golfers would hit hooks from here. But Gerard learned not what he should do, but what he could do. The club may be flat, shut, and short at the top of his swing, but if he made a full turn on the backswing, and an aggressive turn on the downswing, he’d deliver the club square.
“I hit just a little fade,” he says.
The way you turn—your pivot, as coaches call it—is the engine of every golf swing. It’s what makes quirky moves work. If something’s off in your swing, look at the way you turn, both back and through. Just like the engine in your car, that’s often where the issue lies.
7. Dialing-in spin is a control key
Shrouded underneath the Bryson DeChambeau’s whole ‘my driver sucks’ controversy was actually a pretty fascinating situation:
Pros calibrate their equipment to have less backspin means more distance. DeChambeau likes hitting draws because they have less backspin and therefore even more distance. Toe hits reduce backspin.
When he hit the ball on the screws with his driver, life was great. When DeChambeau missed the ball slightly on the toe, his ball would come off with so little spin that he hit shots that would effectively divebomb out of the air, down into the ground.
But last week, DeChambeau revealed a change of heart. He’s been adding more backspin via his equipment (he’s still hitting draws). He knows it’s costing him some distance, but he’s come to appreciate the control.
“I would be the longest in the field, but I have 3,000 [RPMs] of spin to try and control it better,” DeChambeau says. “That’s the main reason I have it this week. When it gets so firm and fast, you need it to help you keep something in the fairway.”
What can the rest of us learn from all this?
Well, if you’re a slicer with a big high-right miss, you probably have too much spin. If you hit hooks, and your misses dive low and to the right, you may have the DeChambeau problem of too little spin. Go talk to a club fitter to get it sorted.
8. Hovland’s chipping is sneaky amazing
Speaking of spin and improving stuff, shout out to Viktor Hovland, who finished inside the top 10 in strokes gained/around the green. Hovland is a low spin guy because he hits so far up on the ball with his driver. Great for distance and general ball striking, but a quality that needed some massaging around the greens.
Earlier this week, I spotted Hovland hitting some nasty flop shots from the fringe of LACC’s practice green. A cool shot, but an intentional one: Hovland’s been working with Golf Digest Best in State Teacher Joe Mayo on bringing his angle of attack down and the low point of his short game swing more forward. Oversimplified, he’s trying to hit more down on the ball. That gives him more spin. His chipping looks legitimately good.
9. Jon Rahm has a feeling
I love when pros talk about the stuff they’re feeling and working on in their golf swings. But how do you describe a feeling? Don’t ask Jon Rahm, because he’s not sure either.
“Yesterday I went to the range in the afternoon and found a very comfortable feel that I felt like I could replicate often,” he said. “It’s a feel that helps me turn better, I don’t know how to explain it.”
Glad it worked, John. If you need me, I’ll be thinking of what it was.
Tip adapted from golfdigest.comi
Recipe of the Week
American Flag Caprese Salad
12 Servings
Ingredients
- 18 small purple potatoes (about 1 pound)
- Kosher salt
- 1 pound herbed cheese spread, at room temperature
- 1/4 cup extra-virgin olive oil
- 1/3 cup fresh basil leaves, roughly chopped
- 26 cherry tomatoes, halved (about 2 pounds)
- 24 1-inch mozzarella balls in brine, drained well and halved
- Special equipment:
- 12- by -17 1/2-inch wooden cutting board, pastry bag fitted with a small star tip
Instructions
- Cook the potatoes in generously salted boiling water until fork-tender but not falling apart, about 20 minutes. Drain well and allow to cool completely. Cut in half crosswise.
- Fill a pastry bag, fitted with a small star tip, with the herbed cheese spread. Cut a piece of parchment large enough to fit a 12- by -17 1/2-inch wooden cutting board. Put a dab of cheese spread on the underside of each corner of the parchment to help it adhere to the cutting board.
- Pipe and spread a thin layer of cheese spread in to a 6 1/2- by -9 1/2-inch rectangle in the upper left corner of the parchment. Arrange the potatoes in rows, cut-side-up, on top of the cheese. Pipe the remaining cheese in between the potatoes to make stars for the flag.
- Drizzle the remaining empty portion of parchment with half of the oil then sprinkle all over with the basil. Starting from the top, make a line of tomato halves, cut-side-up, followed by a line of mozzarella halves, cut-side-down. Repeat with the remaining tomatoes and mozzarella. Drizzle everything with the remaining olive oil and sprinkle with salt.
Cook’s Note
- Since this is a composed salad, you might have some ingredients left over, so toss them together and eat a bonus salad.
Recipe adapted from Foodnetwork.comii
Health Tip of the Week
A Breath of Fresh Air: Purifiers for Spaces Post-Pandemic
Stepping into the house, the first thing you notice is the air: the purity and odorlessness of it. There’s no rush of a sneeze from your allergies that bothered you earlier that morning. You soon find the cause of this reprieve: three portable air purifiers that Olivia Raya, customer service team lead of the air purifier company Rabbit Air, has used for years in her home.
In close to 2 decades, Rabbit Air has launched two tabletop air purifiers and a model customers can hang, camouflaged by an image of your favorite painting or photograph. The devices cost from $370 to $750 for ones that can purify a group office space or apartment.
“We are at the awareness now of how air quality is vital to our survival,” Raya said.
Air purifiers spiked consumer interest post-pandemic as people sought cleaner air that lowered respiratory distress that added to complications from illnesses such as COVID-19.
The need to maintain air quality hit hard once again recently as eerie orange smog and acrid smells shrouded parts of the country, spreading from wildfires in Canada. Levels of smog veiled many skylines across the U.S. and greeted millions of people with air quality warnings.
Consumer groups and government agencies are responding. The popular website Consumer Tested Reviews released its latest recommendations for a variety of consumer air purifiers in June. In April, the Environmental Protection Agency published its guidance for air cleaners and HVAC filters to clear away airborne pollutants and contaminants.
The guidance tells manufacturers to use the clean air delivery rate (CADR) system for the purifier’s performance. Also, high-efficiency particulate air (HEPA) filters, the ability to filter smoke, and the purifier’s ability to remove particles are strongly recommended for portable air cleaners.
The CDC then updated its guidance on ventilations in buildings in May, raising the minimum filter recommendation. Maintaining that level requires replacing filters as manufacturers recommend.
A Concern About Clean Air
Karrie Chan and her husband Edwin Cheung launched Rabbit Air in 2004 out of concern about the air their child breathes. Starting out in their garage, the co-founders worked to improve the quality through user feedback.
According to Raya, the original niche market included people with allergies, exotic bird collectors, and later expanded to cigarette and cigar smokers. The Rabbit Air purifiers also found their way to woodworkers and painters.
Raya said in addition to the “wellness crowd,” Rabbit Air also saw customers from nail salons, doctor’s offices, and schools near freeways looking for ways to reduce pollutants that may later bring on asthma in children.
“You can tell it’s working because there’s a lot – I even see pieces of my hair,” she said.
Do-it-yourselfers can look for plans online. From the oceanside in San Diego comes the Corsi-Rosenthal (C-R) air filtration box, a build-your-own air filtration unit that costs around $70 for materials. Kimberly Prather, PhD, a professor in the Department of Chemistry and Biochemistry at the University of California San Diego, presented the invention to the White House Office of Science and Technology Policy in 2022.
“I always say we can choose our water and we can choose our food. But we can’t choose our air. So, we have got to clean our air” Prather said.
The C-R box has four walls of MERV-13 filters, a standard box fan on top, and relies on tape to hold the purifier together. A cardboard box top with a circular opening allows the air to get pulled in through the fan, pushed through the filters, and released as purified air. Last year, Prather held an initiative to build 250 C-R boxes as part of the air filtration work at UCSD.
According to the CDC, do-it-yourself air filters such as the C-R box, if well-constructed, can reduce viral particles as well as wildfire smoke indoors. The crucial factor is to prevent air leakage from the C-R box with duct tape.
In an average classroom, Prather said that the C-R box clears 90% of particles out of the air in 5 to 10 minutes. During the pandemic, many people started building C-R boxes on their own using the blueprint from cleanaircrew.org with their innovative and creative spins on the fans and exterior decorations.
Opening the window and using air purifiers are two ways to improve indoor air quality, but Prather recognizes that for those living in areas with lots of traffic or bad air conditions, a good air purifier might be the only alternative.
“I would just say do both if you can. If you can’t, you still have the layers – the key is layers of protection,” she said.
The C-R box, when the fan is running at a low level, makes no sound at all. At a high level, it sounds like a regular fan at high speed and can filter the air more quickly.
“The thing I like about the filters is also the reason I have them in my house, which is because you can put them everywhere and they are taking the air out right there,” Prather said.
Prather is gathering data on the performance of C-R boxes in schools and care facilities, and she’s collecting stories on their impact from users. She said having good air quality will improve student thinking skills and help especially those living in areas with low air quality.
Local government agencies, such as the California Air Resources Board, maintain high standards for certifying air purifiers. Both Rabbit Air and the Corsi-Rosenthal box have passed the requirements.
Since 2020, the board has added electronic air cleaners to the same regulations required for commercial portable indoor air cleaning devices.
Pat Wong, PhD, who manages the board’s Buildings and Indoor Environments Section, said in recent years, more companies are applying for certification. In 2022 alone, he said, the agency certified 2,805 air cleaners, almost three times the total from 2020.
The certification includes two tests: electronic safety and ozone removal. An electronic safety test ensures the safety of the purifier to prevent a fire. The ozone test measures the emission concentration to ensure it is below 50 parts per billion.
Even though the Air Resources Board does not test how well the purifiers otherwise perform, Wong said the best recommendation for consumers is to choose a purifier that has the recommended filters.
“Our biggest advice is making sure it [the air purifier] has a filter and make sure it has the correct room size,” he said. “So, it doesn’t really matter if you’re in a classroom, your home, or your business.”
Tip adapted from WebMD.comiii
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Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
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Advisory services through Ballentine Capital Advisors, Inc.
i https://www.golfdigest.com/story/2023-us-open-learned-from-players-lkd
ii https://www.foodnetwork.com/recipes/food-network-kitchen/american-flag-caprese-salad-3663332
iii https://www.webmd.com/lung/news/20230619/air-purifiers-for-places-post-pandemic
