Quick Weekly Re-Cap and Going Forward

Stocks had a dandy week. Bonds continued correcting, with yields rising for the 10-Year and 30-Year treasuries. Gold continued correcting as well, with the gold miners following suit.

Given that bonds, gold and the miners had run up so dramatically, this correcting action has to be considered normal. Not that we don't monitor prices anyway, but it's hard to see right now any indicaitons that recent up trends will reverse.

Going forward, the corrective action should present us with a decent opportunity to positions and add to positions. Rememeber, when you manage money for others, money comes in and goes out as clients either use or deploy assets. So you're almost always in the position of hoping for corrections to major trends so you can add a position or increase an existing position when money comes into an account.

Adding positions in this context typically applies to new account that arrive all in cash. You could just invest it all at once in the desired asset allocation, or break up your buys into two or more tranches separated by some days, weeks, even months in rare cases. The idea behind the splitting up of the buys is that you don't want to buy everything on the same day. The entry price of any item has a lot to do with its gains or losses, at least in the short, sometimes even the short-intermediate term. You could, of course, take the position that all that matters is the long term And logically that's pretty much true. But because we're all human beings, and we human beings have emotions, and emotions play such a big part in investment decision-making, we want to quell our emotions as much as is reasonably effective. Avoiding big down-drafts, when possible, helps us with this quelling endeavor.

Less Emotion = Better Decisions: It's really as simple as that.

Adding to positions becomes an issue when fresh money comes into an already allocated portfolio. The new cash needs to be deployed across the existing allocation. The same logic applies to adding to positions. Especially for positions that are already positive, you want to preserve the progress you've made and not drag the overall position - and possibly the whole portfolio - down by buying when a price peaks, right before it corrects.

But what about a finely-tuned, well-balanced portfolio. If all the moving parts are apportioned such that you can gain while minimizing volatility, shouldn't you be able to add all the positions at once? If things are properly balanced, when one part goes down there's an offsetting action in another part. That sounds OK, doesn't it? The thing is, sometimes, even in the most carefully and skillfully balances portfolios, all positions don't always move the way they "should" in tandem. You could hit a patch where, for example, all your stocks and bonds rise together - and keep doing so. Although it will likely be a temporary situation what can happen is all positions then become "overbought" ripe for, on the opposite end, a correction: "All together now..."

It's not common, but it's more so than you might expect.

So we simply don't throw caution to the wind when adding money. And this week that may be challenging. Why?

Well, at first, with corrections in bonds and gold, we thought we were close to adding to those assets. But then the Saudi oil field thing happened over the weekend. Bonds rallied across the board. Gold and the mining shares did the same. We suspect bonds rallied in response to stocks ralling due to the disruption in oil supplies. Gold rallied as it usually does when there's some sort of dramatic event like the bombing of a major oil field.

It's likely, though, that these will prove to be a pause in a correction that will eventually play itself out. And so we fall back on what we consider the hardest discipline to maintain, something we just posted about: Do nothing - at least for right now. We'll just maintain our usual vigilance and wait for the opportunities to ripen again.

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