Just About Everyone's Happy with the Fed's Announcement: Time to Be Cautious?
Stocks had a field day after the Fed's "dovish" announcement, but just about everything was up. Expect calls now for the end of worry about stocks being in a bear market. We'll likely hear that December was just a steep correction.
Of course, if you expand your reading (and listening) beyond the usual media sources that get the broadest coverage (e.g., CNBC, Wall Street economists and spokepeople, fund managers, etc.), you may find dissenting opinion. While it's good to read opposing views, there's one caveat here: Some of those opposing views may come from perma-bears. These are folks that don't, can't, or won't see a bull if it was charging directly at them, horns positioned to gore them through. They're the opposite of perma-bulls who somehow ignore the Grizzly's roar in the distance, assuming it will just go away if you don't pay it any mind. When it comes to perma-bears, or perma-bulls for that matter, it's best to avoid them.
The fact is, we can't really know what's going to happen in the short-term with any assurance; we might be able to discern the medium-term trend with only slightly more assurance - maybe. But that's OK. Neither matters to longer-term results. It's the main thing buy-and-hold advocates get right: If you do hold "stocks for the long run" you'll make money over several decades. Only long-term trends matter.
So why not just buy and hold? As many times as we've gone over this, let's give it another poke. The main reason is that most of us can't stand the volatility that buy-and-hold investing entails. When a 60% stock/40% bond portfolio plunges almost 30% in 2008, some people were ready to jump off the nearest cliff. They had been told that mix was "conservative," yet they lost 29+%. How could that be?
So what did buy-and-hold advocates have to offer these poor souls: "Buy and hold!" If you were one of those in a state of panic or near-panic, did this calm you down?
The other reason to consider other approaches to buy-and-hold is simply this: There are strategies that offer better returns with less volatility. Having said that, I can hear it now: You can't time the market! Okay, if you believe that, your'e a died in the wool buy-and-holder. Just don't complain if and when we hit another wall for stocks like we experienced in 2008-2009 and 2000-2002, the two most recent examples.
On the other hand, if you've got an open mind and/or seek a better way, then TAA (tactical asset allocation) might fit the bill. You can easily Google it and start the learning process in which I emersed myself going back about 3 - no, make that almost 4 - years ago. For me, it was worth the effort. You may find the same.
So why bring all this up after the Fed announcement rather than commenting on the wisdom or lack thereof of easing up on raising rates? Basically, it's because the euphoria we saw today presents the perfect opportunity to sharpen your caution genes. When things go wrong, it's too late to be cautious. For example, if you obliviously decided to walk through a dangerous neighborhood and a person or persons with evil intent confronts you with knife, gun, machete - whatever - it's fight to flight time (flight being my personal preference). It's too late for caution. Caution would have helped you only by previously considering the wisdom of walking through said area (and deciding not to).
So now might be the time to take a cautious look at the landscape. Doing so, you'll reject and therefore miss that happy feeling that those invested in stocks at the moment are likely experiencing. But if you're investing because it makes you feel good, you're in the wrong game. Feelings are an investor's worst enemy.
Now don't think I've managed to scale the Mount Everest of investing and, doing so, remain above the fray, placidly gazing down upon with a patronizing smile at a world of emotional investors rejoicing when stocks go up and moaning when they go down. Far from it. Emotions remain right at my doorstep when volatility spikes - and that includes both up and down markets. For the most part, though, by stretching my brain power beyond its comfort zone with a lot of research and analysis, I've managed to keep those emotions at bay. Never mind that they keep knocking and wringing my bell. And forget about my being tempted, at times, to answer. None of us humans is perfect.
One antidote that keeps me on the straight and narrow is diverting my attention from the investing arena to other worthy endeavors. A good book (having nothing to do with investing), or engaging music might work. (Maybe I'll post some more suggestions about alternatives in the near future - at least ones that work for me.) Here's something you Bach lovers might consider. It's Glenn Gould playing Bach Tocatas. It's been a while since I listened to Bach for more than a few minutes, and even longer since I listened to Gould. Not sure how or why I bumped into this on Youtube, but you might give it a try. The combination's a killer.
Of course, if you expand your reading (and listening) beyond the usual media sources that get the broadest coverage (e.g., CNBC, Wall Street economists and spokepeople, fund managers, etc.), you may find dissenting opinion. While it's good to read opposing views, there's one caveat here: Some of those opposing views may come from perma-bears. These are folks that don't, can't, or won't see a bull if it was charging directly at them, horns positioned to gore them through. They're the opposite of perma-bulls who somehow ignore the Grizzly's roar in the distance, assuming it will just go away if you don't pay it any mind. When it comes to perma-bears, or perma-bulls for that matter, it's best to avoid them.
The fact is, we can't really know what's going to happen in the short-term with any assurance; we might be able to discern the medium-term trend with only slightly more assurance - maybe. But that's OK. Neither matters to longer-term results. It's the main thing buy-and-hold advocates get right: If you do hold "stocks for the long run" you'll make money over several decades. Only long-term trends matter.
So why not just buy and hold? As many times as we've gone over this, let's give it another poke. The main reason is that most of us can't stand the volatility that buy-and-hold investing entails. When a 60% stock/40% bond portfolio plunges almost 30% in 2008, some people were ready to jump off the nearest cliff. They had been told that mix was "conservative," yet they lost 29+%. How could that be?
So what did buy-and-hold advocates have to offer these poor souls: "Buy and hold!" If you were one of those in a state of panic or near-panic, did this calm you down?
The other reason to consider other approaches to buy-and-hold is simply this: There are strategies that offer better returns with less volatility. Having said that, I can hear it now: You can't time the market! Okay, if you believe that, your'e a died in the wool buy-and-holder. Just don't complain if and when we hit another wall for stocks like we experienced in 2008-2009 and 2000-2002, the two most recent examples.
On the other hand, if you've got an open mind and/or seek a better way, then TAA (tactical asset allocation) might fit the bill. You can easily Google it and start the learning process in which I emersed myself going back about 3 - no, make that almost 4 - years ago. For me, it was worth the effort. You may find the same.
So why bring all this up after the Fed announcement rather than commenting on the wisdom or lack thereof of easing up on raising rates? Basically, it's because the euphoria we saw today presents the perfect opportunity to sharpen your caution genes. When things go wrong, it's too late to be cautious. For example, if you obliviously decided to walk through a dangerous neighborhood and a person or persons with evil intent confronts you with knife, gun, machete - whatever - it's fight to flight time (flight being my personal preference). It's too late for caution. Caution would have helped you only by previously considering the wisdom of walking through said area (and deciding not to).
So now might be the time to take a cautious look at the landscape. Doing so, you'll reject and therefore miss that happy feeling that those invested in stocks at the moment are likely experiencing. But if you're investing because it makes you feel good, you're in the wrong game. Feelings are an investor's worst enemy.
Now don't think I've managed to scale the Mount Everest of investing and, doing so, remain above the fray, placidly gazing down upon with a patronizing smile at a world of emotional investors rejoicing when stocks go up and moaning when they go down. Far from it. Emotions remain right at my doorstep when volatility spikes - and that includes both up and down markets. For the most part, though, by stretching my brain power beyond its comfort zone with a lot of research and analysis, I've managed to keep those emotions at bay. Never mind that they keep knocking and wringing my bell. And forget about my being tempted, at times, to answer. None of us humans is perfect.
One antidote that keeps me on the straight and narrow is diverting my attention from the investing arena to other worthy endeavors. A good book (having nothing to do with investing), or engaging music might work. (Maybe I'll post some more suggestions about alternatives in the near future - at least ones that work for me.) Here's something you Bach lovers might consider. It's Glenn Gould playing Bach Tocatas. It's been a while since I listened to Bach for more than a few minutes, and even longer since I listened to Gould. Not sure how or why I bumped into this on Youtube, but you might give it a try. The combination's a killer.
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