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This Passes as Advice?

| December 23, 2019

When you see someone on TV in some sort of “expert” role, giving their thoughts and opinions, it’s natural to think their comments should be given extra weight. It certainly seems reasonable on the face of it, because they wouldn’t be there if they weren’t some kind of expert. Well, we’re going to step in with an early Christmas gift…news you should already know! That is, what you hear on the 24-hr “news” networks needs to be taken with a grain of salt 😊.

Yesterday I ran across a link on CNBC that said the markets could be up 20% next year. Ok, everybody is entitled to their opinion and like Yogi Berra said, it’s difficult to make predictions, especially about the future. Well let’s just take that for what it is – one person’s opinion – and say that would be a good thing if it comes true. It’s the next part that I want to focus on.

They then got into a conversation about where the best places will be to put your money. Inevitably it came to how bonds are a terrible place to be and how you can’t and won’t be able to make money in that space. While I don’t necessarily disagree with that premise in general right now, I also think it’s imprudent to have no bonds in a portfolio. Which is where the conversation eventually went, with the host saying she is 100% in stocks.

She’s young (under 50) and happens to make $3 million a year in salary on the network. Not a bad gig if you can get it! I know it doesn’t feel like it now (and who knows when it might happen), but the market will go down again in the future. I’m going to guess that most people reading this post aren’t making $3 million a year and may not have the same flexibility that she does if the markets (and her portfolio) go down significantly.

Ok, let me climb down off my perch now….  There will be some people that can’t withstand or otherwise have the fortitude to watch their portfolios go down 30%, 40%, 50% or more. It’s happened before and it will happen again.


Substitute the market in the above cartoon and I think you get my point.

That brings me to my other point, which is Recency Bias. It’s one of the challenges that we as investors face. It essentially says that whatever direction things are going in (or if we feel good about something), we believe it’s likely to continue. And it probably will (for a while). One of the things I always say is, ‘Trees don’t grow to the sky.’ Stock markets don’t always go up and about the time when most people feel really good about the ‘market’ is when investors (collectively) will be taken out behind the woodshed and taught a lesson. 

Below is a graphic from our good friend Carl Richards.

My only points in this whole post are:

  1. Be careful about getting overly excited when things are going well or overly pessimistic when things aren’t going so well (remember Christmas Eve last year?!?)
  2. Being 100% in the stock market may not be in anyone’s risk tolerance unless you’re much younger than me.

Then again, I’m sure someone will call me old-fashioned and that we’re in a new paradigm (because we’ve never heard that before).

The market seems to be still climbing the wall of worry in the face of impeachment, slow growth, $1 trillion deficits, election meddling, etc. We still remain cautiously optimistic and think there is more room to go in this cycle. We did however have our money flow indicator turn bearish late last week. More on that in the coming weeks. We wish everyone a happy and safe holiday season and hope for a prosperous 2020!