Finally, the blog I was going to write 3 days ago. Don't get too excited, it's really not terribly technical in nature; more our observation about human investing psychology...but it is vitally important to your financial health.
As I have written a fair bit, I have been trading and investing securities for a living/income my entire professional career (I have never collected a commission cheque) and there is one thing I know I do, constantly; that is, search for the reasons why the market (or an individual security) is going up or down.
When the market is going up, most people seem to coast, focus on other things, go to the beach, go golfing, fishing...whatever past times you may enjoy. When the market is going up, most people get too complacent and sit on their thumbs..."nothing to worry about". But boy oh boy, when the market gets smacked upside the head, we all sit up straight and start Googling like crazy. "What's happening? Why is the market getting crushed?". It is like a frenzied search for information...like some journalist, who has no capital markets experience, but has a BA in Journalism, will have the answers for all of us.
I am in a bit of a different role managing money at High Rock so I do that every waking minute whether it is acute moves, up and down, in government bonds, currencies, commodities, or individual stocks and corporate bonds. "Ear to the track".
So two things we notice when the overall market goes through weak periods (like Jan-Feb earlier this year) are:
We have a fair bit of history/data on both of these events occurring and their timing. It is quite remarkable.
And this is where human investing psychology comes into play. Transferring your portfolio from an Investment Advisor to a Portfolio Management company, like High Rock, when the market is down is analogous to selling a stock or bond when the market is down. Think about it; shouldn't you make that decision and protect some of your profits when the market is up? Why wait until you see losses develop in your portfolio?
And, quite frankly, you shouldn't need to ask the question "why is the market going down?" much at all if you have a well-constructed, diversified portfolio. That is the ironic part...if you find you get "nervous" when the stock market drops, you probably do not have a well-constructed, diversified portfolio. For instance, over half of the client portfolios that transferred in to High Rock the past year had Zero in Fixed Income. If it weren't so sad, it would be funny. No wonder those folks were nervous when the market dropped. I have taken a lot of risk during my investing life but a 100% Equity Portfolio would make me very nervous...especially right now with stocks at or near their all-time highs.
For me personally, and you can ask Scott or my wife, I get more nervous when the market and my portfolio is up...strange, I know but hear me out. First of all, if the market runs up hard, there is inherently more risk in it...isn't that the time to take stock and question how it is that you made all of that money? This is when I look at the risk we are taking...what is working and why, is it specific securities that are working or is it just "the market" and we lucked out? When the market is coming off, I am less nervous...more excited actually, as it provides buying opportunities on stocks and bonds I have worked on and like, but at lower prices which creates a valuation I think provides a better risk-return skew.
Isn't this the time to take "stock" of what's in your portfolio and...go golfing? Let us worry about why the market is dropping.