posted on 07 March 2017
Last week I reviewed 10-cautionary signs in the market which suggested that upside opportunity remains outweighed currently by shorter-term downside risk. While the market got a boost on Wednesday following Trump's speech to the joint session of Congress, not much changed in regards to the risk/reward equation.
As I stated:
That remained the case this past week. I reiterate this point to be clear that while I am currently monitoring the risk in the market, such DOES NOT mean I am "bearish" and sitting in cash on the sidelines.
However, given the action this past week, I did rebalance portfolios a little bit to bring in some of the gains in larger equity-based holdings.
With that said, a quick bit of history.
I have now been in the financial markets in some capacity since prior to the crash of 1987.
Yes, I am that old.
During that time I have watched investors repeat the same mistakes over and over again. From exuberance to fear, buying high to selling low, chasing returns, and always believing this time is different, only to once again be reminded it's not.
As the old saying goes:
If you have been around the markets for any length of time, you can quickly spot the "pigeons at the poker table." These are the ones that continually rationalize why prices can only go higher, why this time is different than the last, and only focus on the bullish supports. Trying to "draw to an inside straight" is not impossible, it just leads to losses more often than not.
But therein lies an important point.
As investors, our job is NOT making the case for why markets will go up.
Read that again.
Making the case for why markets will rise is a pointless endeavor because we are already invested.
If the markets rise, terrific. We all made money, and we are the better for it. However, that is not our job.
If we are to accumulate capital over the time-span that we have available, from today until we reach retirement, the most important thing we can do to ensure our success is not suffering a large loss of capital.
Therefore, our job as investors is actually quite simple:
With forward returns likely to be lower and more volatile than what was witnessed in the 80-90's, the need for a more conservative approach is rising. Controlling risk, reducing emotional investment mistakes and limiting the destruction of investment capital will likely be the real formula for investment success in the decade ahead.
This brings up some very important investment guidelines that I have learned over the last 30 years.
As an investment manager, I am neither bullish or bearish. I simply view the world through the lens of statistics and probabilities. My job is to manage the inherent risk to investment capital. If I protect the investment capital in the short term - the long term capital appreciation will take of itself.
>>>>> Scroll down to view and make comments <<<<<<
This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved