Well the equity markets around the globe have experienced a down performance over the last week. The pundits which predicted a down turn are now ‘thumping’ their chest and proclaiming their ability to predict the future.
What most investors don’t realize is that these predictions are a matter of luck and not skill. Most of these lucky predictors neglect to mention that they were unable to specify when the drop would occur. What we know about equity markets is that in order to realize the long term superior returns we need to experience the down turns. There are up markets and there are down markets. Over the long term investors will realize a superior return because the assume risk. Of course the regulations require me to say that past performance is no indication of future results.
That said I believe the equity markets will recover and disciplined investors will realize a superior return over the long term. Investors are rewarded for taking on risk. Without risk there is little chance of any reward.
Below is an excerpt from – Mark Matson’s Main Street Money
“Remember, nothing in life moves in a perfect straight line. Up market enthusiasm will eventually fade, and down markets will turn around eventually even if it feels like they never will. Recognize that your brain is lying to you. After all, you are only human. Recognizing the patterns and biases of your own mind is the first step to defeating them.”
I believe it is important to remember that most people believe that when times are good they will always be good and when times are bad they will always be bad. This is NOT how it works. The equity markets are volatile which means the markets go up and the markets go down. For this volatility investors rewarded.
Most if not all investors lack the knowledge and skills to build a prudent portfolio. A great analogy, at the risk of repeating myself, is if I go to Menards or Home Depot or Lowe’s, etc, and ask the clerk to deliver everything I need to build a house. That clerk will oblige and deliver all the necessary materials to any location I request. Once delivered I would have no idea where to begin.
The same holds true for investors all the tools and materials are available to build a prudent portfolio however most if not all lack the knowledge and skills to build the proper portfolio.
Once built these same investors lack the discipline to ‘stay the course’ in good and bad times. These investors, left on their own, will rely on the financial media and the other Wall Street bullies to make investment decisions.
Stop being a victim of the bullies and fire your broker/agent and hire an investor coach.