Emotions are a critical component of the behavior of investors, and fear was at a fever pitch prior to, and now following, the elections. I was bombarded by calls and e-mails from nervous clients asking what we've done to protect their portfolios from a major correction that would ensue after the presidential election results were in. Their overconfidence in their prognosticating abilities of pending crisis was their weakness.
After a lifetime of counseling clients to separate their emotions — such as fear, greed and overconfidence — from their investment decisions, I'm still standing my ground. The goal in my counsel, and that of my co-workers in the firm, is to have clients understand what we have known all along: We are unable to predict the market's outcome, so don't fall into the trap where you think you can make predictions or you'll ultimately increase the probability of losing money.
It becomes a self-fulfilling prophecy whereby the most predictable outcome is that emotionally charged, irrational financial decision-making leads to more money being lost than during the temporary market declines that often occur and that have always become recoveries.