Does Investment Philosophy matter? And seeing
both sides of the market.
this issue we follow up on last months brief comparison
of active vs. passive investment strategies along
with some helpful advice on not following the
was listening to the radio recently when a caller
phoned in to a Consumer talk show to discuss the
beating she had taken in the market. This particular
caller's investment account had dropped 20% from
October 2007 to March 2008 (5 months). It got
me thinking about my personal investment philosophies
compared to the what consumers hear from other
investment institutions and the media.
and Hold" & "Invest for the Long
term", two phrases you have heard quite often
as an investor and hear even more when the market
is dropping. [How's this for a statistic: The
S&P 500 index was 1111 on April 30,1998 and
10 years later closed at 1385 (yesterdays close)
for a grand return of 2.23% per year]. My
feeling is that most consumers hear this advice
from their brokers because the brokers don't know
any better. Let's face it, a lot of the folks
in the investment business don't know of any other
strategy. So their unfortunate clients are left
without any real guidance or plan of attack.
philosophy for managed accounts is that first
and foremost clients deserve proactive communication.
Clients need to understand what is happening in
the market along with what our investment strategy
should be. Should we be completely long biased?
Should we hedge the account or build cash? Should
we adjust our allocation? Instead of the typical
"hang in there, your in it for the long term"
response, my philosophy is that it's the advisors
responsibility to be proactive with clients so
that each has an investment plan.
it always work correctly? No, I am first to admit
that sometimes investment strategies aren't perfect
and biases toward market direction may be wrong.
However, if at the end of the day each client
feels like someone is proactively watching their
accounts and looking for ways to help them make
money, then investment philosophy does matter.
have long preached to anyone that will listen
that the market is a leading indicator. Despite
what the media reports or what the analysts and
economists say, the market has already priced
in the information. How much doom and gloom has
been reported in the news, magazines and by so-called
experts over the past 6 weeks? Over that same
period the market has risen. Why? The stock market
is a leading indicator. It prices in bad news
before it hits the nightly news and it rebounds
long before any good news gets reported.
contrast the rise in the market amidst the bad
economic reports with the saturation of the media
by folks saying gold is going to $2000. After
gold had risen 50% the guru's came out of the
woodwork telling folks buy - buy- buy this year!
And that was with gold trading at $950 to $1000
an ounce. Now those same gurus are telling folks
hold on it's just a correction as gold quickly
drops 20%. Can gold go to $2000? Maybe. But the
moral of the story is don't chase a sector that
has already run up so fast. If everyone on television
is saying the same thing, be careful.
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