Many investors lament the downs of the market. They feel that the randomness is cause for complaint and pain.
Everyone wants to know now what the future holds. What will happen? What is the best investment when the predictions come true? How can I avoid any losses?
After all, Warren Buffet’s number one rule is ‘never lose money’ and rule number two is ‘see rule number one’. To expand on this Mr. Buffet would not sell during downturns because that would mean losing money.
How can I do this if I don’t know the future? The Wall Street bullies are counting on investors desire to ‘beat the market’ and avoid all losses.
Many of these experts try to convince investors that they can ‘beat the market’. That they will guide them to success without the risk of loss.
In reality, the unpredictable ups and downs of the market are part and parcel of its superior long-term rate of return. Volatility is the only reason the market offers a risk premium.
Celebrate the uncertainty. It contains the seeds of growth and wealth creation.
To reach your long term goals you must own equities….globally diversify….rebalance.
In discussions with clients and prospects I hear talk of another eminent crash. This is typically the result of listening to an insurance salesperson selling their product of the day. Their pitch goes something like this. Quoting some Wall Street prognosticator, the market is at an all time high and it is ready for a crash. These Wall Street bullies will tell you to move your money to an annuity so it will be safe from the inevitable crash. They will tell you that you need to act now…before midnight.
Another approach by these bullies might be to exit the market and wait for the crash then buy at the low or on the way up. This is another example of playing on your emotions. These bullies know that investors are fearful that another crash like the 2008 crisis is right around the corner. This is market timing and been proven to be unsuccessful in nearly all cases. Past performance or track records have zero correlation with future results.
In other words, no analyst(s) is (are) able to consistently predict the future market direction.
One suggestion is to ask this advisor for an audited performance record using the Global Investment Performance Standard (GIPS).
This of course does not stop the Wall Street bullies from marketing their past successes.
Remember there are two groups of people predicting equity market directions,
those who don’t know where the market is going and those who don’t know they don’t know where the market is going.
This brings back the original question …What is a crash or a down market or a bear market? Investors continue to fear the unknown. With the 2008 crash fresh on our minds, is another crash around the corner? No one can answer this question with any certainty. But this does not prevent the bullies from making predictions. At some point another crash will occur.
Unfortunately, no one can predict when it will occur.
The definition of a crash depends on you the individual it might be 10% down or 20% down or 40% down like 2008. Remember the first quarter 2009 the S&P 500 was down an additional 24% yet the year end performance was a positive 23%.
The 2008 crisis has been seen as the worst market performance since the 1929 crash although some might say that the 1973-74 crash was just as bad.
The point is there have been bad markets in the past and there will be bad markets in the future. If you are properly diversified at YOUR level of risk your recovery could be quicker than most might think.
There is a trait of human beings that says when times are good they will always be good and when times are bad they will always be bad.
Of course, past performance is no indication of future results. But I believe if you follow the three simple rules of investing:
and fixed income
You can be confident that your portfolio will perform well in all market conditions. This will require the assistance of an investor coach to not only develop the proper portfolio for you but keep you disciplined in both up AND down markets.
The new financial media has convinced investors that there is someone out there that can predict the future.
They have convinced investors that there is someone who can get out of the market at the right time. And then get back in at the right time. There are occasions when someone gets it right. But there is no one to predict who that someone will be in advance.
They also have convinced investors that there is someone who can consistently pick the right stocks for gains. What investors don’t realize is that this is a matter of luck and not skill.
They want to avoid the stock market losses at all costs.
Since no one can predict the future, this is a huge mistake.
You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run. One may get ‘lucky’ but no one can consistently market time.
In markets like these, diversification is your buddy.
Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time.
Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. They often feel diversified but aren’t.
To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.
Those of you which are my clients, own portfolios which are professionally diversified and rebalanced much like the large pension funds.
Over time these portfolios will help you successfully accomplish your investment goals.
To succeed in investing you must own equities….globally diversify…..rebalance.
There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.
Who will win in Washington DC?
What will happen tomorrow….next week….next month…..next year……?
Will the stock market crash? When should I get out to avoid losses?
Should I buy gold and when?
Will inflation take hold? Or is deflation around the corner?
And the list goes on and on…
The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.
Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions. These decisions will in most cases result in very disappointing performance.
If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.
Proper expectations are the key to investing with Peace of Mind.
Do not expect to predict or forecast stock prices and movements.
Do not expect to pick winning stocks and beat the market. In the long-term stock picking will lose.
Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight. If you expect the impossible you will be frustrated, unhappy and fearful.
All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.
To succeed in reaching your long term financial goals you should:
Own equities….globally diversify….rebalance.
Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.
As we approach the 2020 presidential elections. There are predictions popping up as to who will win. And how will it affect the equity markets? .
No one really knows. Let’s pray that the American public makes the right choice. And the right choice is available.
More than at any time in our history….we need strong leadership.
That said, we must stop listening to Wall Street regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? Wall Street doesn’t really care. All they care about is that you trade. Most investors don’t know what to do.
All that you know is what the brokerage community or financial press wants you to know. They have trained you to accept their version of reality – over the span of your entire life.
There is a complete body of investing knowledge developed in the halls of academia.
Most people do not even know that it exists. This is the real wisdom you need to learn in order to create wealth and abundance.
Rather than looking for the next great trade or asset class, invest in a portfolio based on Nobel Prize winning research. Instead of researching investments, your time will be much more efficiently spent on improving your job skills, or learn a new skill set leading to a new career, or even better, spending time with the important people in your life.
Perhaps you should look at your investments with a goal in mind rather than short term performance results.
Taking a long term view of your portfolio will reduce and perhaps even eliminate your anxiety. Remember a disciplined investing strategy will outperform all trading strategies, long term. Stop looking at your investments through the short term eye of a gambler.
Take control of your investments…don’t empower Wall Street.
Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance. Although simple these rules have proven very difficult for investors to follow. In most cases it requires the help of an investor coach/fiduciary adviser.
The stock markets around the world have been extremely volatile.
Huge moves down (which we are currently experiencing), followed by moves up followed by moves down again and then up again. This volatility has investors on edge and looking for safety. And who can blame them. In most cases we are talking about their life savings.
The media has reasons for each move up or down. Many of these reasons fit an agenda for the media outlet. The media understands that many investors are focused on the short-term.
These ‘investors’ are focused on short-term results without regard to the long-term potential. All investors need to keep in mind that they will hopefully be retired for a long time. Therefore, the short-term volatility is really meaningless to them. Or at least it should be.
This is where the guidance of an investor coach/fiduciary brings the most benefit to investors.
By coaching their clients about how the equity markets actually work. For example, there is solid evidence that over the long-term equity markets are one of the greatest wealth creation tools on the planet.
With this knowledge and the discipline to stay the course investors can realize these great returns.
“DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all.” -George Washington
You don’t have to know everything about the equity markets but you do need to know the right things.
Although I don’t agree with most of Warren Buffet’s methods. That is, he believes in picking stocks.
What I do agree with is that he has a process and discipline.
Most if not all investors do not have the emotional strength to remain disciplined during equity market extremes. Both up and down.
There is also a quote by the same Warren Buffet that might help some here. When everyone is crying, I’m buying and when everyone is yelling, I’m selling. Apparently, this only hold true for his buy side. Because he also says his holding period is ‘forever’.
This sounds like market timing, which I do not believe works. That is getting in and out of the market at the right time.
I believe Mr. Buffet’s real point is do not listen to short-term volatility. Stay focused on the long-term.
If you can find an investor coach/fiduciary adviser to help you. You can stop fearing the markets. You can realize the great long-term results. The results that can lead to your successful retirement. Both up to and after your leaving the workforce.
Your coach will among other things teach you the three simple rules of successful investing.
Own equities and high-quality short duration fixed income
These three rules may seem simple, but they are very difficult to follow without an investor coach/fiduciary adviser. Especially when the media is ‘scaring’ the hell out of you.
Many times, when I meet with investors I am asked ‘where is the best place to put my money?’ The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.
These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear in every environment.
A true advisor will often tell you things you do not want to hear. Remember if your advisor only provides the product you ask for they are not an advisor but rather a salesperson or broker.
To succeed in investing being diversified means looking different.
Most investors are narrowly diversified into top performing funds or asset classes of the last five to ten years. They often feel diversified but aren’t.
Right now, on May 20, 2019 the top performing funds are U.S. Large Growth stocks.
To be diversified means including asset classes or types of funds in your portfolio that did poorly over the last five to ten years.
If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.
The goal of diversification is to avoid the volatility, both up and down. Right now, U.S. Large Stocks can do no wrong. However, when there is another downturn like 2001 these concentrated portfolios will suffer.
We need to capture the great returns the other asset classes provide, over the long term. The goal of our portfolios to earn the great market returns. With less volatility. That means over the long term you should capture the great market returns with essentially less risk.
Typically, investors want to concentrate in the ‘hot’ asset classes. If these investors are lucky they will match the great returns the market provides. In most cases they will not.
Of course, we must state that past performance is no indication of future results.
Many will say that ‘times have changed’. They will make a case that U.S. Large stocks will always prevail in the future. Because of the trade wars or whatever…
However regular readers will know that no one can predict the future. No one can tell you which asset classes will out-perform into the future.
To succeed in investing you must own equities….globally diversify …rebalance.
Many investors are continually searching for better returns. They hear their friends talking about their great adviser. I have even heard one investor say they had the best adviser in the country. Not sure how that is determined. Of course, the best adviser in the country must be able to predict the future.
This comparison of one adviser to another is a dangerous strategy. Because one adviser may be hot today or even for a year. But that streak will invariably end. Followed by the next hot adviser.
Psychologists Kahneman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to make $80,000, when others were making $90,000. There will always be “others” with more assets, money, or larger portfolios.
We are doomed to disappointment because comparison destroys the joy of having and using what we already have. Most people would agree to make or have less as long as others were even poorer. Resist the impulse to compare yourself to your “neighbors”.
This includes comparing your portfolio or 401(k) account balance to your colleagues. In some instances you may be better in others worse. The goal of your investments is to attain your long term goal. This would include a strategy and savings discipline.
Developing a prudent strategy and remaining disciplined to it are very difficult, however in the long term will lead to success. No one can predict what asset class or sector will outperform in the future.
Warren Buffet has one strategy which he remain disciplined to. This is the primary reason for his success.
You are speculating if you stock pick, market time or base your investing decisions on track record performance. Keep in mind speculating is ok, but not with your retirement funds.
To succeed in investing you should own equities…globally diversify….rebalance.
As I write this the 2019 NFL draft is complete. Here in Green Bay everyone is talking about the number one pick defensive edge rusher Rashad Gary as well as other fine players. The ‘experts’ are saying why he is a good pick and some are saying why he is a bad pick.
In the past, I watched these ‘experts’ for a while until I realized that they have no idea who is the best pick or player. Until the player performs on the field, they have no idea who will be a star.
There was a lot of hype on the overall number one pick QB Kyler Murray from Oklahoma. He is said to be a, can’t miss player.
Well if you look at history since the draft began a long time ago only 13 overall number one picks have gone on to the Hall of Fame.
There is a lot of hype every year regarding the NFL draft. The experts keep predicting, the public keeps watching. Except for one thing the draft is nothing more than a guessing game.
Our own Brett Favre was drafted in 1989 by Atlanta in the second round as the 33rd player chosen. That means 32 players were seen by the ‘experts’ as better choices. Thankfully in February 1992 Atlanta traded him to Green Bay. Oops! OK I’m biased but Brett did pretty well in Green Bay and will be in the Hall of Fame someday.
Current Packers quarterback Aaron Rodgers, considered by many as the best in the game was drafted in the first round by the Packers. He was the 25th player selected. That means 24 players were chosen before him.
Tom Brady will be in the Hall of Fame someday as well. He was drafted in 2000 in the 6th round. That means that the ‘experts’ believed there were over 160 players better than him. Another oops!
The Packers chose Tony Mandarich as a, can’t miss offensive tackle in 1989. He was chosen before the great running back Barry Sanders in the same draft. The ‘experts’ missed again.
Looking back many variables may have changed history. Would Brett Favre have been as great without Steve Mariucci coaching him? Or would Tom Brady be as great as he was/is without Bill Belichick? No one can answer this with any degree of certainty.
Great players have great coaches. In the right setting at the right time, greatness happens.
While talking with investors I am amazed at how often they rely on ‘experts’. To pick the right stocks. Or help them get into and out of the equity markets at the right time. Or even do their own homework and do it themselves. Without proper coaching these investors are likely to realize disappointing results. It is possible that some will succeed but this will be the result of luck and not skill.
Coaching provides proper strategy and most importantly DISCIPLINE. There will be times when a good coach will have you doing something that they do not want to do. Like buying equities in a down turn. As part of the process, scheduled rebalancing requires selling the good performers and buying the poor performers.
Players/investors become emotional during times of crisis and hype. Without good coaching these ‘players’ will make emotional decisions that go against their overall strategy/plan.
If you are working with an adviser whether human or robo and they allow you to do whatever you want. The fees you are paying are too high no matter how cheap they appear.
Coaching matters over the long term.
Stop empowering the Wall Street bullies. Fire your broker/agent and hire an investor coach/fiduciary adviser.
During the turbulent times we have and are experiencing there will be ‘experts’ telling you what is the best place for your money. It could be gold, annuities, real estate or even a pyramid scheme……..
Sometimes it means concentrating your portfolio in on one or a small amount of hot performing asset classes. It could be all U.S. stocks or all U.S. large stocks or all emerging market stocks or all international stocks or……
Right now, the U.S. stock is in its longest bull market in history. Does this mean U.S. stocks will slide in to a bear market? I have no idea.
However, whenever there is fear in the air someone has the answer for your investments. This is a very dangerous time to be speculating.
If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit. Only hot, sexy, and speculative techniques make the cover. Don’t follow your friends!
Remember the most successful businesses have one strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country, they are all set up the same. They know there may be a better way to run a restaurant but their systems works.
Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he losses more money than most but over the long term he wins. He does not fall for the latest fad.
As an investor you may be tempted to change your investment mix to accommodate current events. This is call market timing and it has been proven not to work. You may get lucky in the short term but you will eventually fail.
To succeed in investing for the long term you should own equities….globally diversify….rebalance. The key is to remain disciplined to this strategy.