As an investor for almost my entire life, and professionally for over 45 years, I find it easy to be a long-term investor. While I find it easy, I understand why so many find it difficult.
The equity markets were on easy street for the first four months of 2019, enjoying strong market returns. Then came May, when markets fell rather sharply over four consecutive weeks. Why? Its simple. In May, there were more sellers willing to accept lower prices. Much of this nervousness occurs when markets are about to reach a new low, but that doesn’t necessarily disappear when markets are hitting new highs. Getting frightened out of the stock market, has always been a mistake. Many investors fled the market in 1987 when the Dow Jones Industrial Average was 1,116. Again, in 2009, investors panicked when the DJIA hit a low of 6,443. The Dow closed June 30th, 2019 at 26,599. Unfortunately, when it comes time to buy, many are not emotionally prepared.
My key to successful investing appears simple and straight forward in “good times”, but any investment program must include a time-tested strategy. Remember, markets go up, and markets go down over the short-term, but it is usually just loud noise from many outside influences. Fearmongers are everywhere and get great exposure when
markets are falling. Human nature is to react to these short-term exaggerations, but in my opinion, the price of a company’s stock and the stock market overall always falls back to earnings and earnings expectations. Those who have followed this approach have been greatly rewarded.
Naturally, all investors are different, but with many common threads. Taking the wrong approach seems to be a path of failure rather than success over the long-term. While interviewing potential clients over the years, I can most often tell what investors will not be a fit for my investing style. Many of these people come to me with unrealistic expectations, which may succeed in the short-run, but successful investing requires a long-term commitment. Many come to me with questions about a “hot tip” they have received, and my answer is usually the same. Can you trust the expertise of the person providing the “hot tip”?
There are still individuals who believe that market timing is the answer, but statistics have proven this to be an unreliable course of action. The same goes for investing in something that you do not understand. There are so many complicated strategies investors are exposed to, while a simple approach may be the answer. If you can’t understand the investment, don’t buy it. I have come across many so-called experts in the field, who sell products that they do not fully understand. Many, if not most of these “products”, come with high fees and commissions, many of which are hidden from the client. There are numerous examples, but be careful of mutual funds, annuities, and insurance products just to name a few. Just remember that things that sound too good to be true usually are.
Over or under diversifying is also a stumbling block for many. You have heard the adage, “don’t put all of your eggs in one basket”. For many investors, asset allocation is a wonderful strategy, but many are in “cookie cutter” programs where all investors are lumped in to a similar investment style without considering their individual needs. One
area of potential concern are strategies which include long-term bond investing. It seems to be a long-term losing strategy (vs. many other investments) with interest rates near record lows and inflation under control. This does not mean that I am opposed to bonds.
Frankly, in the early 1980’s, a large portion of my client’s portfolios were invested in AAA rated municipal bonds While it was an excellent strategy with record-high interest rates at that time, adopting a similar program today is fraught with negatives. There are many other stumbling blocks that investors face, which seem to occur repeatedly. I have written about these mistakes in the past including but not limited to: being overly emotional, borrowing money to invest, as well as not truly understanding your investments. Many investors are their own worst enemy.
Why do I feel comfortable being a long-term investor? It is simple. Avoid the most common mistakes and keep in mind it is time in the market not timing the market that leads to investment success.
As always, we encourage questions. We are here to assist you in any way, as our objective is to have you reach your financial goals. Please call 610-825-3540.