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When Volatility Struck, Did Investors Remember Your Message?

When investors saw the Dow Jones Industrial Average drop 666 points last month, did they remember your message?

As stocks became increasingly overvalued, financial advisors and asset managers warned investors to stay focused on their long-term time horizons as a correction grew near. But, as we know, such counsel often doesn’t survive the rattle of short-term loss.

That Place Where Decisions Are Made

Many behaviors that feel right to investors are often detrimental to asset growth, from panic dumping and bubble chasing to “winner” weighting and market timing. Despite repeated admonishments to resist these urges, we know investors don’t always “hear” the message. Sometimes, the message needs to adapt.

It would be nice to peer into the minds of clients and experience the acoustics of your message interplay in the face of each new market iteration. What compels investors to embrace behavior that feels counterintuitive? While the reasons may remain a mystery, being aware of these behaviors can help advisors and asset managers refine their delivery and further impact investor decision-making.

The Greatest Story Ever Told

In the white paper, The Greatest Story Ever Told , Morgan Housel of Collaborative Fund illustrates the profound role stories play in shaping our realities by asking us to imagine an alien from another planet who has been charged with monitoring the Earth’s economy, and becomes perplexed when attempting to interpret how our planet changed over the financial crisis, from Jan. 1, 2007 to Jan. 1 2009.

From his spaceship, both points in time looked largely the same, but according to the numbers, U.S. households were $16 trillion poorer in 2009 than they were in 2007, and 10 million more Americans were unemployed. The stock market was worth half of what it was in 2007. There were the same number of people making their way around New York, however, and the same number of warehouse, factories, highways and universities outside the city. So, what had changed?

What the alien couldn’t see, Housel writes, were the stories we told ourselves about the economy.

“In 2007, we told a story about the stability of housing prices, the prudence of bankers, and the ability of financial markets to accurately price risk. In 2009 we stopped believing that story. That’s all that changed. But it made all the difference in the world… In 2009 we inflicted narrative damage on ourselves, and it was vicious,” he says.

Housel argues that stories can be more powerful than actual change, and that our capacity to believe in stories—even when they are astoundingly disconnected from the tangible events of our lives—is far greater than we realize.

Getting More Mileage Out of Your Message

The alien’s journey is a reminder that someone’s belief in your story could be the thing that actually gives it life. Harnessing that momentum is a matter of infecting others with your vision. But as much as we’d like to think of our message trajectory as a hockey puck sailing into a goal, in all likelihood, it probably more closely resembles a pinball machine, particularly when the market experiences a correction.

If you’re not being heard, maybe it’s how you’re saying it. If you believe in something, ask yourself why, then consider where your target audience departs from that belief. What is your “truth,” and how does it comport with the “truth” of your investors?

Does your message consider the willingness and ability of an investor to hear it? The roar of market forecasts can leave investors charged, anxious, confused, and sometimes deluded into believing something they shouldn’t. Do you consider the emotions or political beliefs that might be tainting an investment outlook, and offer tips on how to separate the rhetoric from the fundamentals? What about other obstacles potentially blocking your path? Perhaps your data isn’t compelling, or you’re relying on data when you should be using anecdotes. Maybe you need new market indicators, or maybe your message is just too complex and needs to be simplified .

The Uneasy Vs. The Unflappable

You may need to shift your focus from the financial concept to the behavior that’s blocking its delivery. That means alerting investors to their own limitations, helping them identify and confront potentially harmful subconscious biases, emotions and compulsions in times of volatility.

Fidelity International does it this way, urging investors to anticipate volatility to help ensure they act more rationally, in one of its key investor messages .

Researchers who studied the effects of myopic loss aversion , characterized by a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently, found that investors with this trait are more willing to accept risk the less frequently they evaluate their investments. So, if your investors are signing on to view their portfolio at an unhealthy rate, they run a greater risk of losing assets. If these “high-frequency” checkers aren’t responding to warnings about the dangers of buying high and selling low, they might respond to a message on how to avoid succumbing to the anxiety that’s potentially hurting their investments.

Betterment uses this research and some of its own to do just that.

The Fidelity and Betterment messages address the “jittery” client. What about the complacent one? With the Dow and the S&P 500 reaching record highs, and cryptocurrencies surging to frothy levels, it’s not hard to see how a false sense of security might settle in. Complacency plagues the over-confident. Investors who become immune to warnings of a correction after they’ve seen stocks continuously power through each market event may respond to a starker picture of the economy. They see low-risk returns, but maybe you see correlations between high valuations and impending volatility, and high confidence levels that signal the end of an economic cycle.

Related: Ten Life Truths

Changing Packaging, Broadening Context

Some investors may relate more to powerful anecdotal stories, while others may require a more data-fortified picture. That could be an analysis of the potential tax consequences that come with jumping out of the stock market, when reallocating leads to underperformance. Others might react more strongly to historical perspective that indicates we recover from steep losses far more quickly than we realize . That could involve a probability assessment that draws on historical comparisons of similar, prior markets. Other times, your message may be lacking critical context. Do investors need to hear that the 666-point decline felt more acute only because it pierced through such a long stretch of calm optimism? Criticism of Morningstar’s star ratings is nothing new. But it was a recent Wall Street Journal analysis that drew considerable attention to the topic, illustrating how, on the average, five-star funds eventually become ordinary performers. The story hadn’t changed, but the context—or picture they painted—did.

If your investors aren’t responding, it may be time to turn your message on its head. The advisors and asset managers who approach this process with a high degree of emotional intelligence and understanding of human behavior, as well as a firm grasp of the most compelling data, will be best positioned to steer investors away from poor choices. So, you want a bear to see through a bull’s eyes, or a hawk to fly like a dove? Try seeing the world through their eyes. Sometimes, people just need a new perspective. Sometimes they just need to know that you believe it too.