“A schedule defends against chaos and whim.”

Or so says Pulitzer Prize winner Annie Dillard. She probably meant that as a call for daily discipline as a writer, but I can see some wisdom for investors as well.

Much of the time financial markets look a lot like chaos and whim. But sometimes, even a knucklehead like me can see what’s going on.

When a worldwide pandemic causes governments to shutter their economies and quarantine their populations, the markets are going to drop like a rock. And they did.

Add the politically motivated (if mistimed!) oil price war between Russia and Saudi Arabia and you end up with an oil price that was $60 a barrel in January falling to about $10 a barrel sometime in mid-April.

During all this, markets have shown signs of life…even a little bit of optimism. But then, a straw of bad news breaks the camel’s back of equity optimism and once again it feels like your economic world has been flushed away and is swirling down the financial toilet.

And we’re out of toilet paper!

Is all that melodramatic enough for you?

In March, the US stock market plunged into bear market territory, losing 20% in just 20 days. It has never done that that quickly in history. And then it seems to have a pulse again for a few days…and then it doesn’t…

Agh! Is our stock market destined churn in these same cycles endlessly?

If you take a look at history, financial markets dip into bear market territory pretty regularly. At least every five to ten years. Just think back…in 2007 we had a financial crisis bear market. In 2000, we had a Internet Bubble bear market. In 1990, we had a Gulf War bear market. In 1980, the Regan administration declared an all-out war on inflation, raising interest rates and causing a recession.

That’s just what markets do. They breathe. They expand and they contract, responding and reacting to short term “chaos and whim” of the markets, as well as the long-term expansion of profits, as capital is moved from lower performing actors to better (higher) performing ones.

That’s really the purpose of markets to direct capital (or money) into the places where it can be most efficiently used. It’s a process that occurs by millions of people voting through their buying and selling every day. Therefore, declaring who they believe will ultimately succeed.

In the short term it is an ugly, disorderly and kind of dangerous process. But, in the long-term, it’s historically been elegantly efficient and magnificently rewarding in its long-term participants. But I can’t emphasize enough that long term can sometimes take a very long time. Maybe more than you’ve got.

That’s why I say that investing without a plan is really speculating.

So, first, you need a financial plan, addressing your protection and savings, debt and tax, investing and estate needs. You’ll notice that investing is a part of that, but it is not the totality, of a financial plan.

Secondly, you need a portfolio plan, or a plan for how you will invest. This means not only deciding what you will invest in (stocks or bonds or real estate or private business or precious metals or cash), but how you will handle the inevitable bear markets.

If you’ve got a balanced financial plan with a coordinated portfolio plan, the answer for most periods of short-term chaos and whim is “hang in there and do nothing. Don’t panic. Keep the faith.”

But that’s a hard sell to a speculator who thought himself an investor but now realizes he’s not.

We can’t back up the calendar, so no answer that I give you will feel better now if you were speculating.

But go back to square one, have a financial plan done; then adopt a portfolio plan that syncs with your financial plan.

Otherwise … I hope you like more chaos and whim.

Offering you Wisdom on Wealth, I’m Byron Moore.

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