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A Near Disaster Involving Virgin’s Richard Branson Has Some Important Market Lessons

Stock markets were buffeted in the summer of 2015 at the wake of slowing Chinese growth, tumbling commodity prices and the prospect of higher U.S. interest rates. But it’s really the latest example of the simplest explanation of what happens on markets, they go up and down. John Carswell, the president of Canso Investment Counsel, told Financial Pipeline that the latest volatility on markets reminded him of a hot air balloon expedition that almost ended in disaster for Virgin’s Richard Branson.

JC: Richard Branson was in a balloon and he’s trying to go around the world. A hot air balloon has a heater that heats up air and regulates the air into the envelope, you can move the balloon up and down in height. What had happened was, it got stuck. So they couldn’t control the balloon. So when the sun came out, the balloon envelope warmed and they soared in altitude and at the cold nights, there was no heat and they plunged and the two guys were literally along for the ride. So I read that and thought okay, so what do you do in a bull market? Well, in a crazy market, and there’s some aspects in the market right now that are like that. There’s monetary policy, no one can see any risk. Markets soar and it’s hard to stop them, but once all of a sudden negatives come out and cortisol kicks in as (author) John Coates would say, and markets plunge. So what do you do about that? Well, it really doesn’t matter if you’re in a very good company and markets are going up and down. So one day you wake up and go, oh my portfolio is down 20 per cent, does it matter to you if it’s going to be back up a year later? Well, most people will go, I want control, I‘m going to sell my portfolio because I can’t stand my 20 per cent or 10 per cent loss. Well, those are the guys that sold out in 2008 and 2009. And they got back just in time, they started to get greedy, they said OK, markets are rising so in 2009 they wouldn’t put their money in. But in 2011 the markets had been soaring so they put their money in just in time for the Euro debt crisis and then took their money out. So you get the picture. So markets go up and down like this balloon. And the thing is to be disciplined and that’s hard, it’s very, very hard to be disciplined. The average person can’t stand volatility in the markets.

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