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:Continue reading
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:Continue reading
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.
Jeff Holland | VIAIV
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.Continue reading
Investing can be stressful, however with financial science as a “north star” it becomes sustainable and palatable provided that one is optimistic and believes that on average, progress is made (albeit slowly at times).Continue reading