Sometimes the hardest thing for a long-term investor to do is to sit on their hands. With stocks down Friday as investors digest the news of Israeli strikes on Iran , it’s tempting to buy the dip — or bail before things get any worse. Neither option makes sense in this moment. First, a quick recap of all the movers: The major averages are down, but perhaps not as much as one might expect given the fears the airstrikes could start a broader conflict in the Middle East. The Dow shed 1%, while the Nasdaq fell 0.6% and the S & P 500 lost 0.5%. Oil prices are surging, despite Israel’s decision to focus its attacks on areas related to Iran’s nuclear program and not oil facilities. The risk of future strikes on Iran’s oil industry must be considered, thus the 6% jump in crude. Gold rose 1.7% and 4% for the week, and is within striking distance of the all-time high set in April, as investors seek out safe haven assets. Likewise, the dollar index is seeing a small bounce as investors seek shelter. The VIX, also known as the “fear gauge,” jumped to 20, but that’s still a ways off from the 30-plus level when fear truly grips the market. The VIX touched 60 in early April in the wake of “Liberation Day.” What does all this tell us? For starters, the major averages are still only within single-digit percentage points of their all-time highs, we’re not exactly in a panicky market. Rather, it looks pretty orderly. When panic truly strikes, we tend to see correlations move to 1, meaning that assets, even those that are usually inversely correlated, all move in the same direction — to the downside — as investors make a mad dash for the exits and go to cash. That’s clearly not the case here. That could be because President Donald Trump signaled this week that such an attack could happen. After all, the top-performing sectors on Friday are defensive — energy, health care and utilities — and are also tops for the week. Investors may also be simply exhausted and no longer as reactionary to these headlines after more than a year of conflict in the Middle East, and the even longer Russia-Ukraine war. If you sold on any of those earlier events, you missed on the market’s huge run up. Knee-jerk reactions are rarely the right move. Or maybe, the thinking is that this entire thing could be over by Monday if Iran proves to be far less capable than thought. Hezbollah was certainly dealt with faster than expected and Iran’s attacks on Israel have thus far proven largely ineffective thanks to the latter’s air defense capabilities. Sounds like a good time to step in and buy then? Not so fast. While it would be nice to simply assume the best, the No.1 job of investors is to minimize downside. This why banks like JPMorgan and Goldman Sachs are considered to be the best of the best: because they manage risk better than anyone. As investors, we have to think the same way. Of course, we want to maximize upside, but if we don’t account for risk then we can get blown out and lose our bankroll in one swift move. And without a bankroll, you don’t get a seat at the table, so you can forget about upside. So as we approach what could be a weekend packed full of fear-inducing geopolitical headlines, we have to do that most difficult of things: nothing. That’s not to say you can’t make any buys or sells. We are scanning the market and our portfolio while debating internally if we need to make any small adjustments to our exposure, something we advise members to do as well. Rather, we mean that if you are investing for the long term, this is not the time to rush in make sweeping changes to your portfolio. The reality is that while the action today is for the most part orderly, we are too early into this conflict to make any calls. We can, however, consider a few possible scenarios: Iran strikes back at Israel but doesn’t escalate tensions and instead settles down and deals with the United States. That’s likely the best-case scenario for investors. The conflict drags on for days, weeks, months, or longer, but only includes Israel and Iran. Not a great outcome but one the market can likely handle, just as it has with Russia and Ukraine and the Israel-Gaza conflict. Iran ignores Washington’s warnings and also attacks Americans or U.S. assets in the region. This would be the worst possible outcome as it will force President Donald Trump’s hand to respond. As Warren Buffet once said: “Investing is simple, but not easy. The key is to have patience and discipline.” It’s a good rule to follow. The simple part is to keep your focus on sales and earnings. Keep an eye on the news flow and constantly ask yourself what it means for the sales and earnings of your investments both in the near and long terms. As long-term investors, we have the luxury of accepting some immediate pain so long as the future looks bright. At the same time, plan for the worst by having enough cash at the ready to either ride out a prolonged pullback, or better yet, do some buying as more attractive levels are reached. The not easy part is battling your fear and keeping your cool. As noted, talk of World War III will be out there, we’re already seeing it. However, we’ve seen those headlines before and selling on them has been wrong. For now, it is all about patience and discipline. Discipline to stay the course and focus on the fundamentals and secular trends — like artificial intelligence, which continues to draw investment despite the conflict — and patience as we await more information. If you need to do something in this moment, go over each name in your portfolio asking what the outlook is now that this attack has taken place, both in the near and longer terms. Then zoom out and consider your cash level to determine if your overall exposure to the market in general is acceptable. We’re comfortable with our current cash level of roughly 8.5%. Emotional control (the not easy part) is the key to successful investing, so if you see things that make you uneasy or think cash is too low to let you sleep at night, make some small adjustments. There is nothing wrong with that. The name of the game is risk management. Those that can appropriately manage their risk now will have the ability to ride out whatever comes next — and will achieve their financial goals. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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