The situation in the Ukraine and Russia has the global markets spooked. Uncertainty rules the day. Of course with over six billion people on earth there will always be uncertainty. This inevitable uncertainty allows the Wall Street bullies to predict what will happen next. There are hundreds of new ‘predictions’ every day.
These predictions include …..the President’s actions will cause the markets to crash…you should seek the safety of gold…the financial collapse is near…the U.S. dollar will crash and on and on. The talking heads on the financial networks are continually selling fear. This includes the talking heads on the conservative talk shows. Have you ever noticed who is advertising on these shows when the host recommends selling stocks and buying gold?
If they really knew what would happen next why would they tell you?
Is this a coincidence? I have my doubts. These talking heads are there to make money for themselves. And the advertisers are paying the bills.
As I have said many times in the past the Wall Street bullies make money when money moves. When money moves from one ‘hot’ product to the next ‘hot’ product. This movement also includes moving from stocks to annuities or CDs or gold or commodities or whole life insurance, etc. It may also include moving within stocks from on hot sector to the next hot sector. These bullies want you to believe that they have some special ability to know when to move.
This is market timing and studies have shown it to be very ineffective, long term. The following quote by William F Sharpe Nobel prize winning economist. “If one compares a market timer’s return to that of a portfolio of stocks and cash weighted to have the same standard deviation as the market timer’s portfolio, the result is that the market timer must be correct 74% of the time in order to perform better than the passive portfolio of the same risk.”
This means that a market timer to be successful must be right in getting out of stocks and getting back into stocks at the right time nearly three quarters of the time.
Keep in mind that market timers results are based on luck and not skill.
Remember returns do not come from the manager, returns come from the market.
So is this the right time to panic and sell your stocks? The short answer is NO. Now is the time to:
- Own equities and short term, high quality fixed income.
- Globally diversify.
- Rebalance on highs and lows.
Because we use emotions to guide us in many decision we need the assistance of an investor coach/fiduciary adviser. Your coach will keep you disciplined to your strategy and help you thru the short term ‘noise’ of the markets.
There have been bad markets in the past and there will be bad markets in the future. We can use bad or down markets to rebalance.
Rebalance to our original asset allocation.
In this way we are buying low and selling high, automatically. We need to remain disciplined throughout to earn the market premiums.