That Guy Is Crazy
“I thought I could just watch the news, and then sell my stocks if things looked bad. But that didn’t work.” This statement was made last week by a 25-year old gentleman who called my office. In February of last year, he had about $80,000 in an online trading account. But it was concentrated in Peloton, DraftKings, Roku, PayPal, and Zillow. Very aggressive stocks, which mostly started falling sharply about 1 year ago. So his $80,000 online account is now worth about $24,000.
The reality is that often stocks start going down while things still feel really great. And then start going up while things still feel really bad. It is often said that “the stock market looks ahead 6 – 12 months”. Witness what happened during World War II…
Imagine if when we sat down years ago, when you and I first met, I told you “this is the plan”:
- I am going to build you a comprehensive financial plan, and a well-diversified portfolio of stocks, bonds, and cash which supports your plan……….all driving towards the goal of providing you with the income you need for the rest of your life.
- Your plan and portfolio will factor in multiple down cycles in the markets to happen in stocks for the rest of your life. They will expect bear markets to happen. Because unpredictable down cycles are inevitable.
- But when the next down cycle hits, we are naturally going to be afraid…..so we will sell all of your stocks at those lower bear market prices. Then when things feel better, we will buy all those stocks back up at higher prices.
- And every time after that, when a bear market hits and stocks go down, we will repeat that process…….sell stocks low on fear, and buy them back higher when things feel better.
Would you have still thought it was a good idea to work with me?
Or would you have walked out and thought “that guy is crazy!”?
So if panic-selling is dangerous, and basing decisions on the news is a fool’s errand, what can be done?
This is the Investing Process I have applied for decades:
- Construct and systematically update your financial plan
- Construct and manage a portfolio which strives for risk, return, tax, and cost efficiency…..and which is supportive of your financial plan
- Let the markets do the heavy lifting
- Using great discipline, seek to weed out or reduce portfolio positions which become too expensively-priced and/or fall outside of our specific risk parameters
- If the multi-year trend goes negative (which happens very rarely), play some additional defense without ever (ever) moving into market timing territory
Apply a process which increases your odds of building and preserving wealth.
Not one which is based on fear, greed, or news.
Any opinions are those of Rick Wagner and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The views expressed herein are those of the author and do not necessarily reflect the views of Raymond James & Associates or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
The investments listed may not be suitable for all investors. Raymond James & Associates recommends that investors independently evaluate particular investments, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment will depend upon an investor's individual circumstances and objectives.
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Individuals cannot invest directly in an index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
