Fire Drill

von Dr. Nikolaus Braun

It's a fact that people don't make clear decisions under stress. The prefrontal cortex, which is responsible for logical thinking, goes into a kind of thunderstorm: The brain goes into emergency mode and chooses between fight, flight or roll over and play dead. Depending on the situation, choosing the right programme can be life-saving: A wrong-way driver is coming towards you – you flee. A rattlesnake is crawling through your living room – you play dead. In more complex, stressful situations, however, the instinctive emergency programme almost inevitably leads to disaster. That is why there are clearly defined rules of behaviour for many exceptional situations.

Rational behaviour in emergencies must be practised.

A good example is the "man overboard" manoeuvre on a sailing boat. After the "man overboard" signal, a clearly defined automatic procedure is triggered: One crew member communicates the position to the rescue centre by radio, the next keeps an eye on the casualty and continuously indicates his position, if possible, the location is marked with a buoy, then the helmsman initiates a precisely defined, complicated turning manoeuvre to bring the boat as close as possible to the casualty, and so on. Without regular practice of this procedure, the crew members are likely to be overwhelmed by emotion and stress, lose their bearings and then the casualty.

Capital market crisis means winter stock is at risk!

One of the most stressful situations for our ancestors was the loss of their own winter food supply. A bad harvest or spoiled food could mean the difference between life and death. We are all descended from people who were wise enough to take precautions, because those who did not build up winter stores disappeared from the gene pool. Accordingly, the stress situation "winter stock in danger" is deeply ingrained - with the modern equivalent of winter stock being money and assets.

This is why many people's minds regularly fail them during crises and setbacks on the stock markets: In their subconscious, they see their livelihood threatened. Accordingly, they react by attacking (identifying their advisor or spouse as the culprit), fleeing ("sell everything and invest in gold") or playing dead (no longer opening the bank's mail).

What you need as an investor is a contingency plan. You need to have this plan in place before a setback and go over it with your adviser. Provided you have a clean portfolio, this will give you the best chance of coming through the next crisis unscathed.

Here is the Forty-Nine Fee Advisor's five-point plan:

1. Keep calm:

With the right portfolio A capital market crisis is NOT an emergency. It just feels like one. Ignore the financial press, prophets of doom and other alarmists.

2. Get help:

Talk to us. (Link: https://www.neunundvierzig.com/blog/honorarberatung-ist-mehr-als-ein-faires-preismodell text: We'll help you stay on top of things).

3. Remember:

Setbacks in the capital markets are unpredictable and inevitable. And it is precisely because of the risk of these setbacks that you will earn a significantly higher return on the stock market than on other investments.

4 Seize opportunities:

If a globally diversified investment in equities makes sense in general, then it makes sense to buy on the cheap.

5 Be patient:

The free market economy has survived two world wars, the Great Depression, the Cold War, the internet bubble and the financial crisis. The next crisis will pass...

With this approach, you can weather crises with confidence and perhaps even have the inner peace to help people around you who are suffering from panic attacks.

Best wishes,

Nikolaus Braun
Forty-Nine Fee-Only Advisors

PS: Please feel free to send any questions, criticism or comments to nachdenken@neunundvierzig.com.

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20/06/2018