All investors love stock markets that rise and loathe those that decline. However, there are also challenges that investors face when dealing with markets that trend sideways over a significant period of time.
It is quite possible that after the recent bump in stocks since the November election, markets may trend sideways for a while as economic policy is sorted out and the pace of economic growth is established.
Despite the fact that we all know that the best steaks and pancakes are those that are flipped only once, how many of us follow this cardinal rule? Human beings have a tendency to want to take action, believing this will improve their situation. Investing is a lot like cooking a steak or making pancakes. Sometimes it’s best to leave well enough alone.
The first mistake investors make in trendless markets is believing there must be something better. After all, the talking heads on CNBC and Bloomberg continuously bloviate about the trades they’ve made to improve their positions. Of course, what they fail to mention are the trades that have not worked out. We track at least one of these traders and know that despite all insinuations to the contrary, as of within the past ten trading days, his portfolio has declined on a year-to-date basis. Just like with horse tracks and casinos, there is no sure things with investing – especially in a challenging market.
The financial services industry is very adept at generating investor enthusiasm/demand for products in response to past market environments rather than upcoming markets. Reps are the masters at prompting action in response to events that have already occurred rather than helping clients position themselves for opportunities in the future.
Over the past couple of years there have been load of commercials extolling the wonders of gold, silver and other commodities. Prior to that time, we were all told over and over that if we invested in oil and natural gas limited partnerships we would, in return, receive high streams of monthly income. Looking forward from today, expect to hear more about the safety and guaranteed income of annuities. These commercials are appealing to your sense of fear rather than your common sense. Unfortunately, many investors respond only to find out later that such products carry high fees, aren’t very stable or the gains have already been made.
What’s an investor to do in a flat market? We believe it’s wise and productive to periodically evaluate the methods and processes you are utilizing in determining what investments to buy and when to sell. Make certain that your assets are allocated according to your goals and objectives. It is also smart to periodically measure your investments against a pool of appropriate domestic and international benchmarks in order to determine your relative performance. Keep in mind that investment styles go in and out of favor. To get an accurate representation you should always perform evaluations over a full market cycle, perhaps five years.
Investors who does not take the time to appropriately evaluate their portfolios ultimately end-up reacting to an external impetus, such as a TV show, advertisement or salesperson. They are not unlike ships without rudders,making portfolio adjustments at precisely the wrong time.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial adviser. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial adviser prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.