Ep 2 - Market Crashes, Awkward Neighbors, and Overcoming Angel's Landing

Hello, friends. This is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.
So let's get started and get you one step closer to where you need to be. Welcome to another episode of Your Money Guide on the Side.
I'm excited to dive into today's topic that tends to make headlines, even though I hate the fact that it does, nearly every single day. Stock market corrections or crashes.
If you're an investor, or if you're simply a sentient being who has access to any type of daily media, chances are you've experienced the stomach drop moment of seeing red flash across the screen. Or at the very least, you've heard countless talking heads anticipate or prophesize that regardless of where the markets currently are or how the economy is holding up, doomsday is near.
And we better all respond accordingly by being officially terrified and panic selling as many assets as we can before it's too late. I wanted to touch on this today because there are very few channels or outlets devoted entirely to talking through these concepts in a calm and rational manner.
Most likely because nothing sells quite as well as someone telling you that the world is officially coming to an end. But we will take our time today, and we will take the opposition, my friends, and explore how daily market fluctuations, even when going the wrong direction, are not the financial disaster that we've often been told they are.
In fact, when we keep our long-term goals in mind and our heads on straight, they can actually be one of the most beneficial moments along our path to creating lasting long-term wealth. I'm going to unpack, in no particular order, five reasons why daily stock market corrections are not the bad news that you've been told they are.
And although I never want to see my personal assets worth less than what they are today, nor do I wish that upon any of you, I do want us all to take a step closer to where we need to be by putting this endless noise in perspective. First, for what it is, noise.
Noise for which the talking heads of the world are paid handsomely. And second, for what it is underneath the noise, a natural component of investing.
We'll bring in some data, sprinkle in a few anecdotes, and of course, keep the bigger picture always in focus. So let's get started, and I hope you find some value in sticking around for the show.
Number one, remember when the markets drop, you have not lost money. Your assets are simply worth less today than they were yesterday.
My father and I eat dinner together every few weeks, usually at Chili's. First, because I absolutely love the triple dipper.
I'm sorry, I do. I love it.
But also because, in the words of Hemingway, it strikes us both as a clean, well-lighted place. And when you get to a certain age, that type of environment becomes increasingly important.
We usually begin by ordering two tall switchbacks, as good Vermonters do, and then we turn to a brief discussion of whatever's happening in the markets. This is usually a safe way to start, because it's easy for both of us, as it's a shared interest and a common space.
But, and I don't say this to put him on trial on a public forum, but rather to explore how natural and shared his response is, he almost always begins by telling me how much money he has lost or made on a given day. Tyler, you wouldn't believe how much money I lost today, he says, forgetting for a moment that we're invested across virtually identical assets.
Well, did you sell some of those investments? I ask him. No, of course not, he replies.
Well, then you didn't lose any money. Your assets are simply not valued as highly today as they were yesterday.
It's part of a script we both know, and neither of us has come to the point where we're willing to budge on our respective stances. He does not love the challenge, and I in turn don't love that he doesn't agree with me.
But the switchback has had its desired effect, and things simply feel a little lighter than they did a few minutes ago. My argument is simple and hopefully objective.

One of the biggest misconceptions during a market correction is that people think they've lost money.

Yes, your investments are indeed worth less today than they were yesterday,

if you were to sell them.

But you haven't lost a dime until you choose to sell them.

The price of your assets has fluctuated,

but you still own the exact same slice of the pie as you did yesterday. This is usually why I stay away from looking altogether, as I don't want to conflate a current market price with the ultimate projected value of my investments.
So here's a simple and hopefully effective analogy. Imagine you own a beautiful piece of real estate, as many of us might in the form of a primary residence.
One day, someone knocks on your door and says, I will give you $100,000 for your house. You say, no thank you, kind random person, but I appreciate the offer.
You feel good. Your house is worth $100,000 and there's a buyer, albeit some random person wandering your neighborhood knocking on doors offering to buy people's homes.
The next day, they come back, much to your introverted chagrin, with a slightly different message. They tell you they'd still like to buy your house, but they thought about it, and today they're only willing to give you $90,000.
This is the moment that interests me most. For what thinking individual would possibly run to their real estate agent and list the house in fear that the real estate market was going for bust.
The world was coming to an end and they better sell immediately. It would make zero sense.
You bought the house to live in and it was part of a long-term plan. Today, it is still part of a long-term plan.
It has the same structure and it has the same potential as it did yesterday. Only, unfortunately, some ding-dong has triggered you to think about it as a form of immediate liquidity that will be gone forever if you don't act.
Just as we don't wake up daily to check the value of our house, we should not wake up daily and check the value of our long-term investments if they are indeed long-term, regardless of what some wandering neighbor thinks. And as per usual, I blame the talking heads for this mentality.
It sells well and we know it. Nobody wants to turn on the news and have a pundit say, you know, things are fine and you're going to be okay.
Notice how that's never what's said on the news. Unless, of course, you're Ron Burgundy talking about a water skiing squirrel, which was adorable and there should be way more of that.
I worry not only about our access to instantaneous asset valuations, but also this negativity bias. The access alone encourages our looking, and our looking in turn encourages our desire to sell in a state of talking head-induced fear.
Please, next time the world is said to be coming to an end, I would simply ask that you go for a walk and remind yourself that it is the same road upon which you're walking, the same sky at which you are looking, and the same air that you are breathing, and you still own an identical fraction of the overall pie. And as Warren Buffett famously said, price is what you pay, value is what you get.
In the stock market, prices will fluctuate daily, but the underlying value of a solid company does not just disappear because of a downturn. If you believe in the long-term potential of your investments, their daily price is 100% irrelevant.
Number two, if you liked your investments yesterday, when things seemed good and the world was safe, congrats. All of those same investments are now on sale.
I know you've heard this one before, but this one really gets me because a market correction is like a surprise sale at your favorite store. Yet when the sales announced by everyone and their cousin on television at once, nobody wants to go shopping.
It's amazing. In this hyper consumer driven culture where even the hint of an artificial sale sends us sprinting to the stores at 5am to start lining up for the best deals on that new flat screen, the hint of a downturn in the markets sends us running back home to our computers to sell those assets to others as quickly as possible.
Look, if you believed you held good investments yesterday, you're simply getting a better value today. Let's use a quick real world example.
During the 2020 COVID crash, the S&P 500 dropped nearly 34% in just over a month. That sucked.
Many investors panicked and sold. I get it, as it was certainly a scary month, and people naturally fly to safety in the form of risk-free assets.
But those who bought during the dip, or even just stayed the course, reaped the rewards when the market rebounded and hit all-time highs just months later. Yes, just a few months later.
Peter Lynch, one of the greatest investors of all time and one of the only fund managers who can actually beat the market over a long time horizon, put it perfectly. Far more money, he says, has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.

So use corrections as buying opportunities instead of fear-induced selling mandates.

Number three, if you are the type of person who sells your investments during a downturn,

that's okay. Just know you have captured priceless, practical, and lifelong wisdom

because you have learned exactly how you actually respond to market swings. Because investing will never be just about the numbers, and we're not really rational beings to begin with.
It's about psychology. More often than not, major market movements can be explained away by one of two emotions, greed or fear.
If you sold during a downturn, congratulations, you're scared of market downturns, as is most of the world, and you just learned an incredibly valuable lesson about your own risk tolerance. And you can now either modify that behavior and change your investing plan for the long term, or you can just hold the course next time it happens, knowing what you did in the past.
And there will be a next time, always. These downturns are invaluable to you as an investor because risk tolerance questionnaires,

you know, the ones that 99% of advisors hand you when they start working with you, that single sheet of paper that's supposed to serve the advisors to invest your entire net worth. Well, that sheet often asks hypothetical questions like, how would you feel if your portfolio dropped by 20%? My favorite part of these questionnaires is that we, as portfolio managers, would actually take them seriously.
And I laugh now looking back, knowing that you were probably filling out that questionnaire in your pajamas while sipping coffee on a Sunday morning listening to Spotify's Chill Vibes playlist. The amount of clients who think they're either long-term investors or highly risk-tolerant is immense, and as should come as no surprise, that number is almost cut in half when real market downturns hit.
None of us know what our true appetites for risk are until we're staring at the final 200-yard stretch, separating us from the peak of Angels Landing and Zion National Park. And we, yet again, don't cross it even though we told our wives we would this time around.
Well, maybe that's just me, but trust me, regardless of what I said in the parking lot, when you're staring at two 1,000-foot cliff drops, it's a little different. When a real correction hits, your emotional response is drastically different from what you theorized while watching Spongebob in your underpants.
Selling in a panic often reveals nothing more than that your risk tolerance just isn't as high as you thought. And that's okay.
Just make sure you actually learn the lesson and don't make the same mistake over and over again. During the 2008 financial crisis, one of my friends, who actually is very financially savvy, had invested heavily in a portfolio of tech stocks.
As the market tanked, he panicked and sold everything about 10 days after he had invested. Fast forward to two years, and because I kept track of his portfolio just so I could rub it in his face, the tech sector rebounded and his portfolio would have doubled if he had held on.
As we were only 25 years old at the time, yeah, he probably should have held the long-term course. Nothing had changed in his life.
But that experience taught him to better align his investments with his actual risk tolerance and to stop making decisions based on fear. As behavioral economist Daniel Kahneman, who won the Nobel Prize for his work on decision-making, explained, this concept is about loss aversion, understanding that losses can feel roughly twice as painful as equivalent gains feel good.
This is why understanding your own psychology is critical as an investor. Corrections are a litmus test for your emotional resilience.
Number four, and this is a big one that most of us cannot escape. Focusing on a single day's performance is the single biggest mistake you can make as an investor because the stock market is and always will be a long-term game.
Well, to be fair, that's how I have always looked at it, and that's the game that I am playing. Yes, there are day traders, and there are those who buy in and out of the markets trying to time their gains and losses, but over a long enough time period, those players lose, and the long-term players win if they hold the course.
And over a long enough time horizon, the market goes up. When that changes, I will let you know.
Obsessing over daily fluctuations is not only unproductive, but it is absurdly arbitrary. To what are we comparing this new price? Some high watermark? Well, that doesn't seem fair, but it is, alas, what we do, even if the market is up year over year.
This is a good time to remind everyone, including myself, when in doubt, zoom out. By broadening the time frame, we almost always find ourselves having gained if we have stayed the course.
Look at the historical performance of the S&P 500. Since its inception in its current form of the index in 1957, it has averaged an annual nominal return of just over 10%, including all the crashes, all the corrections, world wars, global pandemics, and bear markets along the way.
A single day's dip is a blip on the radar compared to decades of growth. When I reflect on this concept, I always think about how the majority of people in the United States quit their New Year's resolutions within two weeks of the new year.
And the number one cited reason is that they did not see gains quickly enough. You'll start to notice a trend in this podcast.
Our desire for things to happen quickly is dangerous and can lead to some truly damaging actions in both the short and long term. If we were to work out for a few years consistently, even if just a little bit each day, and then glance at a before and after picture or consider our past and current mental state, we would notice some very real differences.
But if we're looking at any of this in isolation on a daily basis, no, we're not going to notice any tangible results from one day to the next. And so most investors who see their first correction think that this investing thing just didn't work for them, they're one of the unlucky ones, and it's time to go back to putting all of their money under a mattress where it is in fact guaranteed to lose value over the long term due to pressures of inflation.
But that's for another episode. Jack Bogle, the founder of Vanguard, once offered his investors some sage wisdom.
Don't just do something, stand there. His point is clear enough.
Patience and inaction often lead to much better outcomes than reacting to short-term market noise. And finally, number five.
Just remember that the stock market is not the economy. It is a fickle ding-dong.
One of the biggest misunderstandings about the stock market is the assumption that it's a perfect reflection of the economy. In reality, it's more like a collective expression of greed and fear.
We can and have had bull markets during recessions and bear markets during periods of expansion and growth. The stock market often reacts to expectations rather than actual events.
For example, in the early days of the COVID-19 pandemic, the market tanked before unemployment numbers even spiked. Conversely, markets often rally long before economic recoveries are fully underway.
And as Benjamin Graham, the father of value investing, described the market, it is more like a voting machine in the short run, but a weighing machine in the long run. Daily movements reflect emotions, but over time, fundamentals prevail.
So once again, establish a long-term plan that works for you and your family, and do your best to avoid joining the moments of panic that are often nothing more than a brief blip of noise in an otherwise steady state of long-term wealth building. In closing, daily stock market corrections may seem scary, but when you step back, they're far from disastrous.
In fact, as we've hopefully seen by this point, there are opportunities to do the following. Number one, understand the difference between price and value.
Number two, buy quality assets at a discount. Number three, learn about your true risk tolerance.
Number four, keep your focus on the long term. And number five, appreciate that the market's short-term behavior is not the same as the economy's health.
So the next time you see red in your portfolio or plastered across the screen, remember, corrections are natural and they are a necessary part of investing. They're not setbacks.
They're steps forward for those who stay the course. Thanks for tuning in today, as I know you have a lot of options when choosing how to spend your time, and I truly appreciate your being here to think through these topics alongside me.
If you found this episode helpful, please share it with someone who might need a reminder to zoom out. And the next time someone knocks on your door and offers to buy your house, just remember that was never part of the long-term plan.
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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode

got you one step closer to where you need to be.