x
Breaking News
0

The Markets Are Doing That Thing Again

By David FabianStock MarketsJul 19, 2017 05:34AM ET
www.investing.com/analysis/the-markets-are-doing-that-thing-again-200201986
The Markets Are Doing That Thing Again
By David Fabian   |  Jul 19, 2017 05:34AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The markets are doing that thing again. That thing where everything looks easy. Where the trends are picture perfect. Where good stocks keep doing good things and bad stocks keep doing bad things. Where shorting the VIX seems like the easiest money in the world and where commodities are so fractured as to be all but unbearable to own.

The lines seem so clear and all the prompts so simple to follow. Every 30 basis intra-day drop in the SPDR S&P 500 ETF (NYSE:SPY) gets bought. Fund flows into passively managed stock and bond funds are hitting record numbers. Life is good.

It’s the type of market that makes you think it’s crazy to be putting new money to work on the long side and suicidal to be setting up shop on the short side. I always remember the old trading adage that you never short a dull market. This type of price action is proof positive of that mantra.

Account valuations for any reasonable investor with a structured asset allocation are hitting fresh highs on an almost daily basis. The high-water marks continue to be moved down the field like first down markers in a high scoring football game.

It’s the type of market that makes conservative investors worry they aren’t doing enough. Maybe they need to be trading more. Maybe they don’t have the right stocks or bonds. Maybe they should be shopping around for a new advisor that is going to take a lot more risk.

It’s this type of market that can be just as dangerous to your psyche as a big crash. It makes you antsy for change. It makes you think that activity is going to equate to better returns. It lures you into a false sense of complacency that makes you quickly forget how easily the good times can unwind and that risk is a two-way street.

If you have followed me for any length of time, you understand that I am a big fan of process. The hallmark of a successful investor is they stick with an investment strategy they easily understand and can own in any type of market. It’s not so much about the security selection as it is about making sound behavioral choices. This is especially true whenever you feel your emotions getting the best of you.

In my own practice, I follow through on that premise by setting minimum and maximum asset allocation guidelines. I can then gradually adjust my portfolio targets using small tactical changes as needed. It keeps our portfolios balanced, correlated, and participating regardless of my perceptions of risk. Even if I think we should be 100% cash or 100% stocks, I know it would be insane to take either extreme given the realistic objectives we are striving to fulfill.

Over the course of my career, I have found that the best compliment to these adjustments is a counter-intuitive mindset. I want to reduce risk in certain areas when it appears frothy and add risk when everyone is worried about some headline or another.

The Bottom Line

Statistically and logically you may identify with the notion that after the big run the markets have had over the last several years that lower forward portfolio returns are to be expected. However, it’s hard to square that with the high optimism, low volatility present circumstances that continues to pump out gains. You understand the risk conceptually, but think it’s not necessarily something to worry about today.

In my opinion, the time to worry is when everything is looking serene. When it seems like your accounts are firing on all cylinders and you’re getting stock tips from your Uber driver. Always remember that investing is hard and there will be tough times that follow the good. Make sure you are psychologically ready for both and make smart choices along the way.

Disclosure : FMD Capital Management, its executives, and/or its clients June hold positions in the ETFs, mutual funds or any investment asset mentioned in this article. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Original post

The Markets Are Doing That Thing Again
 

Related Articles

The Markets Are Doing That Thing Again

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
Write your thoughts here
 
Replace the attached chart with a new chart ?
Post
Post also to:
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email