What Would YOU Do?

What Would YOU Do?

I find this hypothetical game a lot of fun to do.  With my kids, sometimes we will play “would you rather”.  Of course, when playing “would you rather” with a bunch of kids, the questions can get a bit crazy and disgusting.  That said, you can learn a lot from these games as you are thinking of potential outcomes and what you would prefer.  I find this teaches you about yourself more than you know.

So, what do you say, want to play a hypothetical game with me?  I’ll assume if you are still reading, you have decided to play… yay!  Alright, so we will call this version what would you do.  Just for fun, I will tell you my answer after the fact as well.

Market Hypotheticals

With markets near an all-time high, there are always people who feel things are too frothy and a downturn is coming.  The question is, if I told you in the next 90 days there will be a sell-off in the markets, what would you do?  Let me further clarify that I don’t know how far the markets will sell off and when they will rebound.  Cue the jeopardy music, please, and while you are thinking, doesn’t this remind you of Back to the Future 2, where Biff has the sports almanac from the future and uses it to be a gambling mogul. 

OK, time is up.  Now, there are a few options you could have gone with here. 

Option A: You sold all your stock to get out while the markets were high.

Option B: You did nothing and held steady. 

Certainly, there are other options, but I think these are the two most credible options.  What option did you choose?  Or was there another option you liked better?

What Happens

Now that you’ve decided what you would do, let’s talk it through, shall we?  If you chose option A, I get it, why would you watch your investments go down since I told you that would definitely happen in this scenario?  The question you have to ask yourself, more importantly, is when you would get back in.

 

If you chose option B, which is 100% my choice for what it’s worth, then you will have to deal with seeing investments go down for a bit.  The positive is that you don’t have to worry about figuring out when to get back in, as you are already there.

Now, let me continue with this game, and if I told you that not only do I know the markets will go down in the next 3 months, but I also know that in an undetermined amount of time, not only will they rebound to record highs, but they will continue on that path of hitting new highs for a while.

So, what option are you choosing now?  Switching to B?  Keeping B?  Switching to option A?  Keeping option A?

Again, my answer hasn’t changed, as I would 100% stay with option B.  Now I already knew this about myself, but I’m curious if you learned something in the choices you made?

Let me go on a little tangent of my thoughts.  The scenario I laid out is essentially what happens in any market downturn, with the exception of anyone confidently and consistently predicting them.  Markets heat up, markets sell off, and they rebound to new all-time highs.  You can set your watch to this, it seems; however, the when, why, and how long are always the variables.  The reality is no one can predict these things; thus, if you are playing a little bit of game theory, to me, the logic goes like this.

Choosing option B, assuming you believe in the world economy and markets long term, is the only option I know that 100% of the time leads to you hitting all-time highs when the rebound occurs.  Essentially, as long as you don’t sell, you are assured to experience the market downturns, but more importantly, the market upturns. 

Conversely, if you chose option A, the only thing you are assured of is that you missed the temporary downturn.  You are absolutely not assured of receiving any or all of the benefits of hitting new all-time highs. 

Investing is Long Term

Thus, if I am investing for the long term, the answer is simple: choose the sure things versus the impossible things.  Of course, no one can really predict or time the markets successfully, so why bother playing that game in the first place, as you are setting yourself up for failure?

This is why I love playing these games, as the hypotheticals can really teach you a thing and help frame your mind appropriately for what the future may hold. 

That’s all I got for today, now in the infamous words of Biff, “make like a tree and get out of here.”

Stay wealthy, healthy, and happy.