Make a Plan and Stick to It!

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To be a successful investor, you have to have a plan you can adhere to in all market cycles. No matter how good your investment ideas are, they’re worthless if you can’t stick with them. So, think back a few years and imagine this:

•A global pandemic hits. When it did, the market dropped by a third in about six weeks. Shortly after that, the medical community announced that they had a vaccine in process and markets came back very strong.

•Bitcoin: If you go back a few years, cryptocurrencies were red-hot — now they are not.

•Inflation came back to life in a real and meaningful way. The Fed said it was transitory, but it turned out that the Fed needed to raise rates to combat this inflation.

•Russia invaded Ukraine. 

There are always these events out there and always will be, and they derail investors. When the pandemic hit, you could say it was a good time to get out because it was too risky. Bitcoin was going up, you could say, “Hey, I’ll buy Bitcoin and get rid of my stocks. They’re doing better.” People chase — but this can cause permanent wealth destruction.

There will always be a news cycle event that will tempt you to make a trade based upon current events, however, markets are forward-looking and discount these events. Future unknown events move markets. If you invest without a plan, you are putting your financial future at risk.

The reality is that if you invest, you will have a lot of these headline news stories, which generate a lot of FOMO — Fear of Missing Out. This can be dangerous and can derail good, sound thinking.

However, if you have a plan, you can stay the course through market cycles. The market has delivered positive returns over time despite all the headline news (that usually induces fear). 

The reason we can expect that the market returns should continue to do well in the future is that human beings have this incredible ingenuity to solve problems and innovate, as witnessed by what’s happened over the last 50 years and beyond. What should drive markets up in the future is basically the incentive to produce profits. There are no guarantees, but human beings have been able to innovate and solve problems in the past. Why would that change?

David Booth of Dimensional said, “I don’t make predictions, but I do believe in the power of human ingenuity to solve problems big and small, innovating the whole way. What has stayed constant throughout my life is the power of people to make progress in the face of challenges.”

Plans need to be made during cold moments — cold meaning in a non-emotional moment. When the heat comes, which is a storm, and for sure there are always more storms on the horizon, as investors, make sure that you stick with the plan you made in advance in that cold moment.

The reason most people don’t get good returns is that they constantly chase. And if you chase what’s been hot, you basically get burned. . . . It’s funny, people think, “Well, I’ll buy a stock because it did so well,” but you don’t get the past returns of what you recently purchased. You only get future returns. So, while chasing it feels good, it can be wealth-reducing.

Have a plan you can live with, stick to it, and relax. That’s the key and my message for the month of January 2023.

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Jeff Holland | VIAIV

Three Ways to Stay the Course and Stay Calm During All Financial Market Cycles

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Many pundits tell people that timing markets is an effective way to manage market cycles. Empirical and theoretical data show otherwise. What we’ve been sending to clients and people, which seems to resonate well and is supported by financial science, are three things that we think are important when investing:

1. Trust market prices.

2. Diversify like crazy.

3. Avoid the noise.

Trust Market Prices:

Trust Market Prices means stocks are priced to give an expected return, otherwise people wouldn’t buy stocks — it also means one can’t outguess market moves. We think trusting market prices is an anxiety reducer because it allows you to stay invested at all times, good and bad. When the market is going up or at an all-time high, it’s a good time to be an investor because there is a return that’s expected. When the markets are going down, it’s still a good time to be invested because there’s still a return expected, or investors wouldn’t buy stocks. Trusting market prices is true for public security stocks across the globe supported by Nobel Prize-winning financial science, so trusting market prices is paramount.

Diversify Like Crazy:

At VIA IV, we’re not speculators. We’re not looking to gamble and maybe turn $1 into $10 — or $0 — overnight. So, if you want to invest to grow your money, diversify like crazy across countries, including the US, international markets, and emerging markets. All of these different markets have had similar returns over 30-40-year periods, but you don’t know when the returns are going to come.

Our portfolios hold in excess of 10,000 securities including large, mid, and small caps and tilt towards value stocks. Basically, you own the world, so one bad outcome in one company/industry won’t be catastrophic. The point is, by diversifying like crazy, you get a similar return with lower price fluctuations because you don’t have the risk of one company taking you out. Again, that’s supported by financial science and Nobel Prize-winning research. Harry Markowitz says, “That’s the only free lunch” in investing.

Avoid the Noise:

We think this one should be equal to the other two, but it may be more important because of what’s happening in the media today, social media, parties, cocktail parties, etc. — everybody is giving their own opinion and their opinions are already in the market. So, for the most part, these opinions have no value except they’re great anxiety provokers and ad (profit) generators for media companies. Some businesses are built on trying to get people to behave in certain ways to enhance their profits. Think tobacco, gambling, day trading, etc. Trust in financial science — don’t act upon the noise.

Do the right thing and follow financial science — your bank account and state of mind will thank you.

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Jeff Holland | VIAIV

The Markets are Not Broken

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The markets are very competitively priced today. Lately, I’ve been hearing from clients and I tell them that bear markets are tough, they have always been temporary, not permanent, and just part of investing.

We’ve told them those things in the recent past, but there’s heightened anxiety, right now, so we still get questions like, “Well, maybe we sell now?” and, “… because everything looks really bad. The inflation numbers are higher, the housing stats are slower, the CPI is higher, interest rates are higher.” What we tell clients is that these are really, really competitive markets, and the price of stocks is based upon all known information. What moves stocks and bonds is future unknown news, like the chairman of the Fed speaking or data points being released.

Stocks are always priced to get a rate of return at that particular level, or nobody would buy them. What is important to know is that, even though the bear markets are tough, and even though the inclination is to try and get away from the pressure when you are selling a stock because you just can’t take the pressure anymore, there is somebody as equally informed as you, who is on the other side of the trade, thinking there is a return to be had in that stock.

What we say to people in these moments is, “You’re emotional now, but try, if you can, to put yourself into a more rational state and realize that there is a financial science of markets. That science states that, for every buyer, there is a seller. The press likes to say, “There are more sellers than buyers, today.” But that is not a true statement. There are no orphaned stocks because, for every seller, there is a buyer. The only reason anybody would ever buy stock, whether it’s in the United States or internationally, would be because they thought they were going to have an expected rate of return. 

So, as challenging as it is to be an investor, if you have financial science, a Nobel Prize-winning science, which we do have on our side, it becomes the north star.

Many investors invest without a plan, without science, and then it becomes incredibly hard if not impossible to succeed. We have financial science that guides us. When we talk about investing, we’re speaking about investing in cap-weighted indices, whereas most people, when they’re talking about investing, they’re talking about just buying a hodgepodge of random, single stocks — they speculate.

We think it’s important, which we have said many times before, investing is always going to have plenty of price fluctuations or volatility. It is important to know that prices are being transacted every day, to affect a future expected rate of return. With history being the only guide we have, the  “market” has basically compounded 10% annually over time, through wars, depressions, famine, etc. And with human ingenuity, there’s reason to believe that markets will continue to reward patient investors.

Markets aren’t broken, markets are working. We just don’t like the prices that are happening, but that is the reality of the world we live in. In the alternative solution, one could always go to all cash, but then the returns would be significantly lower than a portfolio of global equities.

Lastly, I’ll conclude with — Where is our market today? Prices are still higher than they were five to ten years ago. If you can keep your eye looking out five or ten years while looking back five or ten, and see where you’ve come from, it makes it a better ride. Progress is not linear. It’s not a straight line, it ebbs and flows, but stock investors have historically been rewarded.

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Jeff Holland | VIAIV

Bear Markets Are Tough

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Bear markets are a natural part of investing in equities around the world. Bear markets are… well, nobody likes them. They’re tough, but they have always been temporary, and there’s never been a permanent loss of capital during bear markets of globally diversified portfolios. The most important thing about bear markets is to remember they’re not predictable when they begin, and you can’t predict when they’ll end. To receive a higher rate of return on your capital without investing in cash, you must always be invested in markets, and bear markets can create stress, which could create potential poor financial decisions. It’s like this demon has shown up to unsettle your mind. They seem to be at inopportune times in your life, but the reality is that any time a bear market rolls in, it’s inopportune.

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