Red Light, Green Light is the name of a children’s game where one player is “the traffic cop” and the others are the “driver”. In the children’s game version (not the Squid Games version) the traffic cop turns their back to the players and yells out green light as the others race to the finish line. The trick of the game is that the traffic cop can surprisingly turn around and yell out red light and each “driver” must immediately freeze. If you move, you are out of the game. This game was created to reward the child with the best listening skills, controlled movements, and keenest concentration. The fastest players never won because they could not control their forward momentum when the words red light was yelled out, forcing them to move. Amazing to me how many life lessons can be learned from a children’s game.
Right now, the global economy is playing Red Light, Green Light with us. One day we hear or feel green light, the next, red light. In the first game the financial news is reporting a goldilocks economy, the next day banks are all going insolvent. In game two we hear interest rates are going higher due to inflation, the next day we hear interest rates headed lower due to recession. In game three we hear the dollar will collapse due to illiquidity in the banking system, the next day we hear banks have never been stronger and are highly capitalized. In game four we see crypto currencies headed higher due to illiquid financial markets, the next day we see the government wanting to control crypto trading. In game five we hear that the US is running out of money and will default on its debt, the next day we hear that tax collections are at an all-time high. When games are too hard to win people stop playing. In investors terms, they start buying short term treasuries, CD’s, and money markets. They stop trying to outsmart the traffic cop as they don’t feel they can win.
When you add fear of loss to the mix, if you haven’t already quit, your investment timeframe shortens. What may have been a well-thought-out ten-year plan immediately turns into a ten-day plan. Investors forget to look at the long-term picture and can only think about surviving the day/week/month/quarter. We get stuck in permanent red-light mode with the belief that we will find the necessary strength to reengage when everything calms down. Sad part of that game is the capital markets never calm down. Yet over time they have shown us they reward the investor with the best listening skills, controlled movements, and keenest concentration. Red lights are as an important part of the game as green lights. As in the children’s game described above, an investor can’t finish the race and win the game unless you understand what it takes to win.
Our job at The High Net Worth Advisory Group is to help you win the game. We have little idea as to when the economic traffic cop will surprise us with a red light. We do however know how to react when that time does come. Markets will remain volatile, politicians will continue to amaze us with not having the basic understanding of how an economy works and yet the capital markets will move forward with far more years of green light than red and those who take advantage of that, will race across the finish line knowing that although investing is not a game, you could have far greater success by strong listening skills, controlled movements and the keenest concentration. A simple lesson in a children’s game that today applies to all of us as adults and more importantly, investors. The team at The High Net Worth Advisory Group is here to help you through the red lights so you can enjoy more of the green.