Volatile markets tend to remind me of my golf game. One minute the weather is perfect, the putts are rolling, and I’m thinking I might try to sneak in another nine holes once the round ends (after telling my wife the group in front of us is “really slow,” of course). In the blink of an eye, the storm clouds roll in, and I chunk my next shot into the water. Off the heels of what is considered a universally strong market performance for the past few years, we’re entering a volatile period as stocks enter a bear market and bonds, historically considered a safe haven, fall in lockstep.
In our view, inflation has shown to be anything but “transitory” and has left the Federal Reserve with a difficult ultimatum: act fast and aggressively or allow inflation to become entrenched in the minds of consumers and begin to spiral out of control. Markets have responded in kind, pricing in the expectation that additional tightening measures are coming. We believe volatility is likely to continue for the foreseeable future with richly valued Growth stocks and speculative investments like cryptocurrencies leading the decline as we phase out of the loose monetary policy during COVID. Investors are effectively adjusting to the expectation of higher interest rates, meaning future profits are worth less when discounted back to today.
Like golf, surviving the rough patches can be more mental than physical. In golf, I have to remind myself not to let one bad shot ruin the next— it’s important to acknowledge emotions, but not allow them to take over and influence my behavior. While market declines can be uncomfortable, we do not see any major, structural weaknesses – like the subprime mortgage crises of the mid 2000s – that would give us cause to sound the alarms.
Recession lights may be flashing, but with the underlying economy still on solid footing, our base case is that any upcoming slump may be shallow and brief.
Now for the important question: “what does this mean for me?” I may not be Nostradamus, and I can’t guarantee that Jerome Powell will be able to achieve his “soft landing,” but I can promise that prudent decision-making and sound management should allow you to ride things out without making drastic changes that tangibly impact your lifestyle. Neither golf nor investing are without risk — and I’ve gathered some time-tested tips and strategies I’ve learned on the golf course that could help you to be both strategically offensive and defensive in the worst market conditions.
1. No knee-jerk reactions.
Do you pack your clubs and call it a day after hitting a bad shot on the third hole? I’d certainly hope not (well maybe some people do, but I wouldn’t recommend it). Emotional decision-making can cloud your judgement and lead to short-term decisions that damage your long-term future. Countless studies have shown that selling off your stock portfolio during a downturn may temporarily put your mind at ease but does little to grow and sustain your wealth over time. Behavioral finance tells us people act irrationally when money is involved, but just like not ending your round after a single bad shot, you shouldn’t call it quits if the S&P 500 drops ~20%.
2. Trust in tactical diversification.
Course management defines the set of choices you make during every shot to put yourself in the right spots. If there is water to the left of the green, and the pin is on the left side, you might aim for the center knowing you can still two-putt for par. By being in the right places before and during a bear market, you can come out ahead compared to those who simply buy and hold the broad market. Consider this example from a recent blog post by Ben Webb, Director of Manager Selection and Implementation: Being in the right place during a correction means that investor A requires less return than investor B to get back to where they were prior to the downturn. We believe wealth is preserved when markets are weak by owning the right spots within equities, and smart tactical diversification, like course management, can help investors come out ahead.
3. Using cash to your advantage.
One of the beautiful aspects of golf is that a 25-year-old bomber can play with an 80-year-old senior, and both can enjoy the game equally without negatively impacting the other’s experience. They will play different tees, and approach the course in different ways, but will still share the same overall objectives. With cash, you’ll make different decisions based on your phase of life. A young investor looking to grow their wealth should consider deploying that dry powder during downturns at more attractive valuations rather than buying that new patio furniture set (my inner demons are exposing themselves as I write this). An older retiree may want to consider maintaining that cash buffer so they can spend and maintain their lifestyle without tapping principal at lower valuations. We recommend 1-2 years of cash needs (spending, capital calls, etc.) set aside to ensure you can weather all market conditions.
4. Go on the offensive with tax-efficient strategies.
The best players on the golf course know how to take a bad lie or difficult obstacle and turn it into a chance at par or better. There are professional players who are so good out of hazards, like bunkers, that they can turn it into an advantage. Similarly, market downturns can open the door for savvy investors to execute strategies to boost after-tax returns. Consider tax loss harvesting examples where offsetting future gains improve outcomes. Executing Roth conversions using assets that have fallen in value can minimize the tax bite and ensure future compounded growth and qualified withdrawals become tax free. We work with clients to compare different tax and insurance scenarios to guide them in making planning decisions that improve their tax situation.
5. Time in the market vs timing the market.
The more golf you play, and the more you work on your swing, the better you will get. Diligence and working on areas of weakness help improve your game but it doesn’t happen overnight. Investing for future goals can be a long game requiring patience and composure as stocks climb like an escalator, and then drop like an elevator. There are always reasons to sell, and we believe investors who ride out the storm and allow compounding interest to work its magic will have the best chance at success. Market timing can be a fool’s errand as some of the S&P 500 Index’s best days have occurred during a bear market. We feel it’s best to ride out the downturn and stay invested since it’s difficult to time a recovery. Focus on what you can control and play the long game.
While both golf and investing can be frustrating (especially golf, for me), we feel they require similar levels of focus, objectivity, data-driven decision-making, and persistence. It’s critical to focus on the areas you can control and avoid letting outside noise impact you. Lean on the guides around you to help you navigate your decisions, whether that’s your golf caddie or your wealth advisor. This means peace of mind with your wealth knowing you’re protecting capital during times like these; it also keeps me coming back to the course, no matter how bad the previous round may have been.
On that note, I may head to the course later and treat myself to another bogey-filled round…work permitting, of course.
 Vistage International, Are recession’s red lights flashing? How to get ahead of the curve – a webinar by CEO Adrian Cronje, Ph.D, CFA
 Balentine, For market corrections and Jack Reacher, details matter
 Balentine, The Case for Cash
 Balentine, Silver Linings from Market Sell-Offs: Understanding Tax-Loss Harvesting
 The Wall Street Journal, Fight the Bear-Market Blues With a Roth IRA Conversion
 Balentine, Reasons to Sell the S&P 500