Stay disciplined and seek opportunities to upgrade portfolios. Don’t succumb to panic.

After having avoided several near misses, U.S. equities recently fell into bear-market territory for the first time in more than 11 years, plunging a dizzying 32 percent from record highs registered just one month ago and ending the longest bull market in history. 

The “Coronavirus Crash” has been one of the swiftest peak-to-trough market declines ever, and the hibernating bear has come roaring back in a major way. In addition to materializing swiftly and suddenly, the bear market has been widespread, with nearly all asset classes (save cash) experiencing losses in the past few weeks. In statistical terms, correlations amongst a variety of financial, asset prices have converged to approximately +1.0, representing perfect correlation. As a result, many investors are justifiably asking, “What should I do now?”

First and foremost, we strongly believe that investors should not panic and abandon their long-term plan, nor should they eliminate equities from their portfolios in a wholesale manner.

As the primary growth engine for most portfolios, equities will benefit from future economic expansion once it re-emerges.

That said, it is also important that investors carefully evaluate the types of equities represented within their portfolios and consider making some minor tweaks during this time of extreme uncertainty.

While we reiterate our view not to sell equities indiscriminately, we urge investors to enhance an existing equity portfolio by adding high-quality companies and pruning lower-quality companies. High-quality companies are those that exhibit above-average and relatively enduring profit margins, possess lower levels of leverage on their balance sheets, and are led by experienced, proven, and aligned allocators of capital.

Low-volatility stocks represent another category of equities that can provide some cushion during a bear market. As their name suggests, these stocks are intriguing for their defensive asymmetric attributes: They participate in up markets but decline less than broad market averages in down markets when volatility typically surges. Similarly, large-cap growth stocks tend to outperform their small-cap value counterparts during bear markets when, in general, earnings growth is scarce. We have emphasized minimum-volatility stocks within clients’ portfolios for roughly nine months and have recommended a tilt toward both large-cap and high-quality stocks for several years. These decisions have proven beneficial, and we continue to believe they should be featured within an investor’s portfolio. 

Investors can also seek unique returns from other means. One such strategy seeks to capitalize on the volatility risk premium, or VRP. Designed to provide protection against market volatility, this approach has proven to be beneficial over time. That’s because most investors overpay for protection, just as most people overpay for insurance they never use (thankfully). 

Understandably, bear markets trigger emotional responses in all of us. Fueled by an incessant cascade of negative events, recency bias can stoke fear and cause investors to extrapolate the present to the future, often leading them to overreact or freeze in place. In our view, while it may still be premature to add aggressively to equities just yet, we think investors should assess the types of equities they own and consider upgrading their portfolios during this time of immense uncertainty.

We also advise investors to be mindful of potential opportunities to improve the diversification of their portfolios and help position them for the future. Sunnier days will arrive, and we believe that investors who remain deliberate and disciplined, do not allow themselves to be overtaken by panic, and seek opportunities to upgrade and enhance their portfolios will be rewarded over time.      

John King is sales leader for Key Private Bank in Central New York. Contact him at (315) 425-8607 or email:  john_h_king@keybank.com

(Author’s note: Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice. This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.)

As human beings, we’re experts at deceiving ourselves, all because it’s so easy for us to think we know more than we do. As a result, we do less than our best work, miss out on opportunities, and mess up our decisions.

To be sure, self-deception is one way we keep ourselves safe. We use it to fend off enemies that would expose us to troublesome situations. No one escapes; we all do it. With self-deception, it’s easy to believe the little voice inside us is right.

Although we may picture ourselves as rational human beings who process information objectively, psychologists Karen Reivich, Ph.D. and Andrew Shattè, Ph.D. tell us “we are downright shoddy scientists. We collect incomplete data, we use shortcuts to process it that lead to biased appraisals, and we make errors in interpretation that often support our favored hypothesis.” In other words, we construe facts until we feel good. In short, we screw up.

Here are five self-deceptions that hold us back.

Self-Deception #1 — “Others are better equipped to handle challenges than I am.”

It doesn’t take much thought for most of us to conclude that others are better prepared to face personal or work-life issues. Yet, the chances are they see us the same way we view them.

As it turns out, what we’re doing is measuring ourselves against the wrong standard. It’s not us versus them (except in our mind) since the actual competition is with ourselves. We spend time building “this is why I can’t” cases against ourselves, rather than realistically assessing our capabilities against our past performance. Simply put, we don’t give ourselves enough credit.

Self-Deception #2 — “I need a little space to get everything all set.”

There are those who view themselves as perfectionists. But wait a minute, it could be something else. “I don’t want to pull the trigger too soon. I would rather wait a little longer.” Some of the seemingly most-competent people suffer from this self-deception.

It’s easy to set the bar so high we never get ready. If we get close, we keep raising it higher. It’s easy to convince ourselves that anything less than flawless is failure. “I need to go over the proposal one more time to be sure it’s right. I’ll have it to you by tomorrow.” As we all know, tomorrow never comes.

Self-Deception #3 — “I’m afraid something will go wrong and I will fail.”

Few of us escape the fear of failure’s grip at one time or another. Which is why there is so much advice available on how to loosen fear’s hold on us. But when it comes right down to it, trying to get over the fear of failure isn’t the point.

When I was 11, three of us hiked up to a police shooting range. The goal was to dig out the lead buried in the hillside behind the targets. Hauling our bounty home, we lit a Coleman gasoline camp stove in our garage and melted the lead in a Hills Bros coffee can. To see what might happen, one boy poured gasoline in the can. Instantly flames shot up, along with hot, liquid lead. Although we were scared stiff, miraculously none of us was hurt.

Fear can be an effective survival technique is the point of the story. Ignore it and you can get hurt. But you can also use fear to your advantage by asking, “What could possibly happen if I move forward with this project?” Lay it all out on the table, evaluate it thoroughly, and then make your decision.

Self-Deception #4 — “I may not meet the requirements, but I know I can do it.”

As a taxi driver said about Mexico City traffic, “If you don’t try, you’ll never make it.” Such daring describes the “go get ‘em attitude” of many successful people. But the results don’t always come out that way. We can also wind up in trouble.

Perhaps this may be why Nobel Laurette Daniel Kahneman ended a Ted Talk this way: “Don’t trust yourself too much. Don’t trust in ideas and beliefs just because you can’t imagine another alternative to them. Overconfidence is really the enemy of good thinking, and I wish that humility about our beliefs could spread.”

Self-Deception #5 — “I’m good at what I do so I’m not worried.”

I’ve wondered why Hewlett-Packard runs endless ads for its printers at near giveaway prices. Declining printer supply sales may be the answer. As a recent Bloomberg Businessweek article points out, HP’s 1989 annual report stated, “New products are the lifeblood of our company.” But, as the BB reporters note, “Today old products are arguably the lifeblood of the company.” Marketing printers results in a continuing stream of printer supply sales. Yet, the article notes, sales of supplies declined for the last three quarters. Companies, as well as individuals, can suffer from self-deception.

No one lives or works in a “self-delusion-free zone.” We are all victims of self-delusions. We’re the prisoners of our own self-serving thoughts, which can be deceptively calming and protecting us from danger. We’re eager to believe the little voice that says, “Everything’s going to be OK.” For example, “Others may come down with the Covid-19, but I’ll escape it.” Or, “Others may be laid off, but I’m needed.” We are suckers for selfies of our own reality.

There is one self-deception that ties all five together, one that can get us in deep trouble — professionally and personally. It’s this: there’s so much we think we know that we don’t know. The future may well depend on admitting there are glaring gaps in our knowledge, when being tough on ourselves can make a difference.

John Graham of GrahamComm is a marketing and sales strategy consultant and business writer. He is the creator of “Magnet Marketing,” and publishes a free monthly eBulletin, called “No Nonsense Marketing & Sales Ideas.” Contact him at jgraham@grahamcomm.com, (617) 774-9759, or visit: johnrgraham.com.