Winning and losing—two sides of the same coin. Heads you win, tails you lose. But when it comes to investing, the behavioral economics "Prospect Theory" indicates that losses are twice as painful as gains are enjoyable. That is, loss is felt twice as hard as gains are. But how is this experience unique for sales pros? How do market losses affect these ultra-competitive professionals in particular?
Wired to Win
The sales profession is a highly competitive field. Because compensation is tied to performance and performance is often a result of closing a client within a specified time frame, the successful sales pro must be wired to win. However, this competitive nature can make “losing” in other areas—such as the stock market—a much tougher pill to swallow.
For individuals who work day in and day out to reach sales goals, there is a sense of control that is developed over a desired outcome. Sales pros equate success with their own dogged work ethic or ability to close. They develop a certain sense of control over their capacity for reaching sales targets.
No one, though, can control fluctuations in the financial market. Because the market is influenced by investor behavior, and investor behavior is influenced by media headlines, micro and macro events around the world can cause extreme swings in the market within days, even hours and there simply isn’t anything anyone can do about it.
How an investor reacts to this movement, though, can determine how successful he or she will be in building wealth long-term. Sales professionals tend to struggle with the concept of losses in the market they cannot work to prevent. This impulse to control can lead to the costly sale of depreciated securities when markets turn south.
Short-Term Feeling vs. Long-Term Strategy
The sales world operates on very regimented timelines. Successes and failures are measured in short-term intervals, most often by quarter (or annually at best). As a result, sales professionals tend to prioritize short-term thinking over long-term strategizing. However, this mindset can be damaging in a down market when investors are already uncomfortable and consider panic selling their investments.
Of course, fear and anxiety are understandable. No one likes to see their portfolio take a hit. But prematurely selling securities can cost future gains when the market recovers. The key is to keep perspective when markets decline in order to avoid incurring costly mistakes.
Decades of practical and academic evidence have taught us that capital markets’ long-term trajectories have been upward. Between 1946 and 2018, the stock market underwent 26 corrections. On average, the markets declined about 13.7% but only took about 4 months to recover. In fact, some of the market’s best days happen within days or weeks of their worst days. Roughly 60% of the S&P 500's largest one-day gains occur within two weeks of its 10 largest single-session losses. Deciding to jump ship when numbers are falling could cause you to miss out when the tides turn.
Keep in mind that loss is not actually locked in until securities are sold. The individuals who lose the most money in a downturn are those who pull out at the bottom (driven by fear and anxiety about further loss) and re-buy when the stocks rebound. This jumping in and out of the market might temporarily alleviate the discomfort caused by a down market, but can significantly stifle long-term growth. Missing out on the stock market’s biggest gains can have a larger negative impact on the probability of success of the overall financial plan.
For sales professionals, the struggle when investments decline is to curb their short-term, competitive nature and desire to act in favor of patience and big picture thinking. They key is to keep perspective, which may translate into sitting on losses in a portfolio for a while in order to remain invested and secure the win upon the market’s rebound.
Meenes Wealth partners specializes in helping working and retired sales pros make smart financial decisions in all market climates. If you are interested in learning more about how we help sales pros build financial plans that specifically take into account the pressures, volatility, and time demands inherent in the sales profession, contact me today for a complimentary initial conversation.