“The fishing was good; it was the catching that was bad.”
— A.K. Best, fishing author.
“Stock markets are swimming in the face of two major investor emotions. They are fear and greed.” — Adrian Mastracci, fiduciary portfolio manager.
All you have to do is rewind to the 2020 investment results. Especially those recorded during the months of February, March and April. They brought new meaning to volatility, in both directions.
Mention 2020 and practically every investor is glad it is in the rear view mirror. Tread carefully as those pesky markets are not known to march to your wishes.
Accordingly, I attempt to highlight some basic ideas that help in portfolio construction. Focus on expanding your knowledge, say of at least three strategies that improve your nest egg.
Each day now brings a new crowd of market optimists and pessimists. Along with various assortments of buyers and sellers. Just playback the last two weeks.
Be aware of the implications in both camps. Successful investing is about stickhandling one’s comfort zone between fear and greed.
Rules to live by
So, rule number one. No knee-jerk reactions please. Regardless of whether you’re buying or selling.
Rule number two. Markets operate on logic. Do you?
If you succeeded with these two rules, step aside and breathe. If not, rewind to rule one. The bigger question is why would you want to?
Some investors may seek to calm their fears by preserving capital. Others prefer to chase their greed by hitching onto growth wagons du jour.
A few more pessimistic data releases could drive the markets lower. Conversely, a few more ounces of optimism could propel investor confidence to higher levels.
Don’t just follow the crowd at the expense of your outlook. Instead, stick with the comfortable path to your destination.
Sacrificing investment quality to hunt for yield or performance is a dicey bet. I continue investing within the long-term strategies set out for each client game plan.
Spend some time revisiting the components of the action plan for when markets rise or fall. Neither outcome should be a surprise if you plan for both. Yes, both outcomes. Perhaps, the expertise of a fiduciary manager can assist your quest.
For example, investors heavy into stocks and mutual funds may consider taking some off the table. Stickhandling your investing pursuits between fear and greed is a logical approach.
There is no value in fretting whether the markets rise or fall from here. Start by accepting the fact that stock markets cannot be managed.
However, what can be managed is retirement portfolios. Follow this simple 3-point strategy:
▶ Invest within your sensibly designed asset mix targets.
▶ Sell some of your winning holdings as their prices advance.
▶ Buy some of the quality laggards that fit as their prices fall.
Your winners may rise further and the laggards may fall lower. Keep applying the 3-point strategy.
The important word for this is “some.” Recall the timeless advice from the children’s book: “Slow and steady wins the race.” It is a very boring strategy that works very well.
Too many investors ride the winners on the way up, then on the way down. Once exasperated, they finally throw in the proverbial towel and sell somewhere near bottom.
Sadly, many of them move on to repeat the same blooper. Clearly, these investors have to stop marrying their stocks.
Holding onto winners is definitely more exciting for investors. They have very little or no appetite for selling winners, even in small doses.
Regrettably, too many miss the warning signs when the time comes to exit. You may easily get caught flatfooted in the stampede.
Simply said, pay attention to your fear and greed strategies.
Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA started in the advisory profession in 1972. He is portfolio manager with Vancouver-based Lycos Asset Management Inc.