Over 2,500 years ago Aristotle developed a philosophical principle he called the “Golden Mean.” He argued choosing moderation between two extremes is often the most moral and desirable of all actions. For example, he argued that while courage is a virtue, too much courage can turn into recklessness and not enough becomes cowardice.
In a culture where all of the focus seems to be on the extremes of the world, I thought this week I would make a case for moderation. Since this is a financial column, I will start with a discussion of the stock market and the economy.
Over the past couple of months, I have had many conversations with clients who are convinced the world is ending. Their balances have dropped more than they can bear, and are ready to jump totally out of the market.
To some extent, I understand how they feel. Someone who has a million dollars in an investment account has likely seen their balance lose between 100k-250k since the first of the year. (With active money managers like us likely being on the lower end of this scale.) I don’t know about you, but losing the price of a new home in a mere 6 months would cause me to be more than a little upset too. We’re hosting several free seminars on how to survive these types of turbulent markets in the upcoming coming weeks if you’re interested in joining us.
The trouble is, too often, we as investors look at new highs in our balance as the new normal, and never want to see the balances drop below that. That is not reality however. It’s simply not fair to expect a high-water mark for an account balance that has come after a nearly 14-year bull market to stay that way or to continue going up indefinitely. At the same time, those who want to take all of their money out of the market because they believe the market will never recover are also too far on the extreme to be accurate.
As Aristotle’s principle would say, the best perspective is somewhere in between these two extremes. During both good and bad economic times, I try to remind our clients that the only thing that is constant in life is change. While this principle is certainly true when it comes to our economy, that maybe wasn’t as healthy as it appeared to be last year, or as sickly as it appears to be right now, the same can be said for all aspects of our lives.
You may be going through a time of great loss or difficult challenges right now. It may feel like things will never turn around and the state of suffering you are currently experiencing is the new permanent normal. I’m here to tell you that’s not true. On the other hand, you may have just gotten back from an amazing summer vacation and still be on that vacation high that makes you feel like life is only going to keep getting better. That sadly, is also probably not true. Reality is somewhere closer to the middle of this spectrum.
For some of you I hope this article brings level of comfort, and for others I hope it serves as a reality check that some of your unrealistic expectations of both the stock market and your life need to be adjusted. But for all of you, I hope it serves as a voice of sanity to a world that seems to only be allowing those on the insane extremes to be heard.