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Where Is Your Evidence?

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The first two months of 2016 resulted assets and wealth being transferred from those with no stomach for volatility TO those who can handle it. Many investors panicked and sold their equity positions during our recent downturn.

The doomsayers were coming out of the woodwork predicting the pending doom. ‘Run for the hills” they proclaimed. The market is crashing. In most cases these ‘experts’ had just the product/solution to protect you.

The best strategy for investors is to develop a scientifically backed portfolio, for their risk level and forget it. (I shouldn’t say forget because we will rebalance periodically.)

I recently read about a movement in the investing field. It is called “the Evidenced Based Investor”.

This movement is nothing new. In fact, this is what I have been proclaiming all along.

This ‘new’ movement says ignore the financial media, ignore your friends who found the next ‘get rich quick’ scheme.

There will always be someone who beats the market.  Unfortunately there is no ‘evidence’ that that same someone will do it again.

Remember the equity markets are random and unpredictable. That means that stock picking and market timing do not work. It also means that finding a money manager with a great return does NOT mean they will repeat.

Currently there is a cloud of pessimism covering America and perhaps the world.  There is also a human tendency to believe that when times are bad they will always be bad and conversely when times are good they will always be good.

Although no one can predict the future, the economy, America’s and the worlds’ will get better, when I don’t know, but it will get better. Do not react to these short term volatile changes.

Remember research has shown that the average investor holds their portfolio an average of three years, much to their detriment.

Following a prudent process with discipline will lead to investing success long term. In most if not all cases this will require the guidance of an investor coach/fiduciary adviser.

The ‘evidence’ is clear.

To succeed in reaching your long term financial goals you should own equities….globally diversify….rebalance.

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Should I Buy or Should I Sell My Stocks?

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Ideally, we should all just time the market cycles and only buy when the market is low and sell when the market is high. Unfortunately, investors are unable to do this with any consistency. Whether professional or amateur.

We tend to make our investment decisions based on recent past events and how we feel about those events.

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080809_Kodak_Tower_Top (Photo credit: Wikipedia)

If the market has done well lately, we wish, we are comfortable buying stocks. If the market has done poorly, however, (like we are seeing now) we avoid them. Unfortunately, this is the exact opposite of what we should do if our goal is to maximize our long term return. Once we feel “comfortable” with the market, we have usually already passed up large potential gains.

Stocks are the only thing people will not buy at a discount.

The stock market is forward looking and usually starts trending upwards between 6 to 9 months ahead of the economy actually recovering from a down cycle.

Remember, Warren Buffet is a buyer and NOT a seller.

There is an unholy alliance between the media and the large financial institutions to convince the investing public to continue trading by spreading fear and panic. The large financial institutions make money when you trade in and out, making money on every trade. The media encourages sensationalism because it sells advertising.

You should own equities…globally diversify…rebalance and believe that America and the capital markets will recover. We as a country have been thru much worse and we recovered and became stronger.

Not all sectors of the economy will recover or come back to where they were prior to 2008.  Other sectors will recover quickly and new sectors will emerge and thrive.  The problem is no one can consistently predict what will happen and when.

The world as well as the equity markets are constantly evolving. Things never stay the same. At one time, Xerox was a great company with great innovative products. Now they are almost irrelevant. Or Kodak, or Blockbuster, or the ‘Buggy Whip’. There are technology advances everyday which replace products that were once considered irreplaceable.

Out with the old and in with the new.

No one can predict when any product will be replaced. Or when any company will become irrelevant. No one can predict the future with any degree of consistency.

Nearly all investors require the assistance of an investor coach/fiduciary adviser to guide (coach) them thru the down markets. As well as keep them in check during strong up markets in any specific asset class. Your coach will provide you with the discipline to keep your eye on the long term.

Your coach will help you avoid making decisions based on your emotional response to short term volatility.

Your coach will help you build a prudent portfolio designed for YOU. Your portfolio will have a level of risk you are comfortable with.

Remember without risk there is little or no chance of reward.

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Do You Need An Adviser?

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There have been many investors asking do I need an adviser? The answer to this question would be ‘no’ except for one fact ….you are human. And humans are emotional beings.

If your broker/agent takes your order and does whatever you ask. You don’t need an adviser. But if you are looking for advice and someone to help you through the maze of investments. You need an investor coach/fiduciary adviser.

You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.

As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)

Greed….Regret….Trust…Loyalty…Envy

  1. “It doesn’t matter how sophisticated his charts are or how much sense he makes, I just don’t feel comfortable letting him handle my money.”
  2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”
  3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”
  4. “I’d wish I’d known that stock was going up, I would have bought more shares.”
  5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”

Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty

We as people are naturally predisposed toward or against specific investing tactics. What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view. It is easy to overweight information that validates our perspective while minimizing any information that goes against what we inherently believe.

The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions. The recent up and now down markets have many investors on edge, asking….should I get out of the market for good?

Along with the six year old bull market have investors on edge.

This is really what the financial institutions want…they make money when money moves.

Here is a great example of why investors need an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio designed for you AND keep you disciplined to that strategy in both up and down markets.

As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.

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