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Sideways Markets

Eighteen months of nothing, or is it?

Over the last eighteen months, the stock market has reached the same level about twenty times, despite threatening to ‘break out’. It begs the question: during extended periods of sideways markets, what are we, as advisers, to do?

The adviser selling a predominately investment-focused proposition has had a terrible time. It’s easy to overpromise when taking on a client, but the chickens come home to roost when the market underdelivers. The first 12 months of any client relationship have an approximately 25% probability of providing poor or no returns. This is one of the reasons I send all new clients my “Our First 12 Months” document (a favourite in the HUM Premium content library). Basically, it’s warning the clients that over the very short term, the market is random, and if we hit one of these periods, it’s no reflection on our planning strategy or my advice.

The adviser selling a predominately behavioural proposition (yes, we sometimes give the client some of what they want so that we can later give them what they need) always has important work to do. And in a sideways market, we have another valuable opportunity to drive home some fundamental principles that investors will never take to heart during a bull market.

So, what are the principles we convey during times like these? Below is my list, and I’d love to hear some of yours.

1. Despite current conditions, the portfolio is already perfect.

The secret that most clients don't want to comprehend is that their portfolios were perfectly set up on day one of our relationship. The real challenge is ensuring they stick to this portfolio for the next ten thousand days.

DAY 1 = perfectly set up

DAY 2 onwards = ensuring they don't blow their plan up

The portfolio is perfectly crafted to weather all market cycles. It consists of a collection of global businesses whose management adjusts the business as they see fit to produce a rising income for their shareholders. It’s really that simple.

2. Sideways markets provide an opportunity to stock up on units.

The bulk of your clients should be contributing to their portfolios. If they’re not, you have the wrong clients. Focus on “younger” clients who are aggressively saving. Ideally, they should be age 50 and run a business. These clients are motivated to fix their retirement problem, and your job is to remind them how many months they have left to fix the problem. This number is often around 120 months. We work well with people who want to become financially independent before age 60, our sweet spot if you like.

3. Being patient has always worked.

Investing illiterates are always looking for the new thing, the thing that’s working now. Selling new investment ideas to investing illiterates is akin to shooting fish in a barrel. It’s the preserve of the pirates in pinstripes; they’re welcome to them. We work with slightly clued-up insiders, people who’ve made a few mistakes and bought the shiny thing that ultimately turns into the useless thing. They’ve had enough and now want to be told the truth and invest in a portfolio that’s always worked.

So, when the market does nothing, we also do nothing. The plan hasn’t changed, so the portfolio doesn’t change either.

Our Core Values Never Change

As real financial advisers, we have the privilege of managing the financial futures of the client families we serve. We’re the last line of defence in this increasingly noisy world where our clients are constantly being fed negative information that drives them to ask,

“Should we exit the stock market because of _______ crisis?”

You and I know that there’s a chance we’ll never see the market at these levels again. Stand firm by proclaiming your core values to those who have entrusted you with their financial future. This is a time to double down on our core values.

📰 Articles & Blogs

The Science of Listening, for Advisors [3 minutes]. Discover the science behind listening and how it can improve your client relationships.

Use a ‘Human-Centric’ Approach to Improve Your Bottom Line [4 minutes]. Incorporating financial psychology and understanding clients' stories can improve an adviser's bottom line and lead to better outcomes.

The Evolution of Financial Advice [11 minutes]. The history of the stock market, the rise of robo-advisors, and the importance of understanding behaviour in investing,

Smart Things Smart People Said [3 minutes]. Insightful and thought-provoking quotes of successful thinkers on topics such as happiness, success, love, and life purpose.

3 Steps To Implement Pre-Commitment Strategies [24 minutes]. Learn how to entice prospects while identifying the right prospects and showcasing the value of your guidance and expertise.

Why Do Investors Hire Their Financial Adviser? [3 minutes]. The surprising emotional reasons why investors hire financial advisers and how to address these needs in your practice.

🎧 Podcasts

TRAP: Sin Bin or Send Off? [82 minutes]. The TRAP pack discuss handling problematic clients.

How Financial Empathy And Data Visualization Influence Client Behavior [109 minutes]. Insights on motivating and demotivating forces, practical tips for improving financial behaviours, and more.

📚 Book Recommendations

Am I Being Too Subtle? by Sam Zell. Great insights into the mind of a legendary real estate investor and businessman.

🖼️ Visuals

The Top S&P 500 Stocks by Annual Returns (1980‒2022)

Ranked: The Top Economies in the World (1980‒2075)

A Complete Breakdown of S&P 500 Companies

🍿 Videos

Human perception: how to change a client’s mindset

At HUM London 2017, Graham Cox explained the neuroscience behind decision-making and how to influence others by understanding their emotional state. Some takeaways from the talk include:

Perception is based on expectations, first impressions, and context.
Our decisions are largely made in the emotional part of the brain, rather than the logical.
Changing someone’s mindset requires understanding their emotional state and using techniques like reframing and anchoring.