Arguing With The Market Can Be Hazardous to Your Wealth?

With the market doing its best impression of a Six Flags thrill ride the last few weeks, opinions are not in short supply. Last time we wrote a little about the importance of the angle the talking heads/pundits on the tube are coming from. For instance a money manager of a Small Cap mutual fund is not going to talk about the probabilities that large caps will lead the market in the coming years. He would be at risk of telling his shareholders to sell shares of the fund he manages. Any money manager who by prospectus has to be invested in an asset class would be hurting his own wallet by not talking up the asset class.

When we hear a talking head say that the market “doesn’t get it” and gives all his/her evidence for their take, the only thing we deduce is that the market moved against them and they are trying to explain why they are underwater of recent. One thing is for sure, the market always gets it! We have found that arguing with the market is almost sure to be hazardous to your wealth.

Most stockbrokers/advisors advocate that the long term is the best way to invest. We don’t believe that to be always necessarily true, just take a look at what a stock portfolio would look like ten years later if it had been fully invested in equities in the summer of 1929 or 1966. Our take on the reason they hold that position is that they are not familiar with the benefits and process of a more nimble dynamic asset allocation strategy. A Buy and Hold strategy is much simpler to implement and maintain also.

Buy and Hold has been the mantra of Wall Street since we have been in the business the last couple of decades. We believe this works well for them because to have that stance you are generally optimistic for the long term. After all “the market always does well in the long term.” This eliminates the need to ever have a conversation of concern or caution. It is difficult to sell investment products or ideas when there is a note of concern in your conversation.

So history shows that there have been times where cash has been the asset class of preference. With that in mind a good question for an advisor or talking head is what situation would have to unfold for them to recommend a predominantly cash allocation in their portfolio. Let me know we would be interested in their answer.