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.
Jeff Holland | VIAIV