…The five principles of fear:

1. Fear leads to physiological changes in the body (forced breathing, sweating, head pressure). Thus, it can be personally identified.
2. Fear causes changes in how people think about and react to bad news (indecision, paralysis, building pressure, and panic). Thus, it often leads to bad decisions.
3. Fear is different from panic. Fear is an anticipatory emotional state.  Fearful people see many risks. Panic is reactive, and it is characterized by an urgent pressure to act immediately.
4. It takes tremendous effort to “keep one’s cool” when frightened.
5. Other investors’ fear can be detected in the markets, often via and experience reading of price dynamics.

LESSON – We succeed and fail in relation to the level of surprise we have in experiencing the markets. Know and understand markets go up and down (they have to) to experience long term gains greater than cash, bonds, or inflation/taxes.

We thrive or take a dive in our ability to engage in a process to overcome it. Such as plugging into the LifePath Process, listening, accepting, and acting on the wisdom we share.

There are really only three options investors have when presented with volatility:

• Ignore it
• Overreact to it
• Exploit it

Successful Investing: The ability to say no over and over again.

Here’s what happens when you make short-term decisions with long-term capital:

• You constantly change your strategy and chase past performance.
• You ignore any semblance of a long-term plan.
• You end up being reactive instead of pro-active with your decisions.
• You incur higher fees from increased trading, due diligence and switching costs.
• You lose sight of your actual goals and time horizon.
• You are always in search mode for the ‘new’, ‘better’, or the next strategy
• You end up with a portfolio that’s built to withstand the last war, not the next one.
• You lose out on much of the long-term benefits that come from diversification, rebalancing and mean reversion.

Why do we love Equities and skew to Value/Dividends?

Here are three reasons I think it makes sense to broadly diversify, both globally and within an asset class:

• No one really knows how the future is going to turn out. The U.S. has been the clear winner over the last century or so in terms of becoming an economic and stock market powerhouse. It’s hard to see that changing anytime soon but who knows how these things will play out in the future from a relative perspective. Diversification is an admission of a lack of foresight about an uncertain future.
• Diversification is never going to protect you from horrible days, months, quarters or years. It really earns its stripes over longer periods of time (which are the only ones that should really matter to investors). The only way it works is if you have the patience to follow through with it. Like all reasonable investment strategies, it’s never going to feel great all the time.
• Successful investing really boils down to regret minimization. Think about being a U.S.-only investor and missing out on those huge relative gains in foreign stocks the 70s and 80s. Or think about being a foreign investor and missing out on the huge relative gains in U.S. stocks in the 90s and more recently. Most investors will be better off thinking globally, not because it promises higher returns, but because it reduces concentration risk. Diversification is still one of the best forms of regret minimization and risk management an investor has.