The Economy vs. Stocks
What is wrong with this picture?
There is a common myth propagated by those who promote the ownership of the equity asset class (or stocks) that a strong economy will drive corporate earnings, which in turn should drive stock prices (generally) higher.
But over the last nine years or so, that story has been sold to everyone who will listen (would-be investors mostly) by the investment community who, by the way, have a lot of vested interest in seeing a rising stock market. Even the more appropriate "fee-based" financial advisors who offer a balanced approach (but usually leaning more aggressively toward stocks) reap the rewards when higher stock prices drive portfolio values higher.
And prices have been driven higher and higher (with the hype) bringing the value of those prices into question (because economic growth has not).
As long as they are able to keep you invested, the advice community get paid their commissions. If the portfolio values rise, they get paid a little more. So they all want you to be "fully" invested at all times. That is what pays for their Mercedes', downtown condos and country homes. They sell you the idea that you need to be fully invested all the time.
The investment community gets real nervous when the real world begins to interfere with their cozy lifestyle and rush about telling everybody to "hang in there" when they see that the state of their happy world starts to come under pressure.
A good portfolio manager (very different in many ways from a Financial / Investment Advisor, because they have a legal fiduciary responsibility to always put their client's interests first, before their own: i.e. the way that they are paid), on the other hand, manages risk. That means that they are avoiding over-priced assets and always searching for value opportunities with which to invest on behalf of their clients (which also means that they have more work to do). They don't buckle under the pressure of "the flavour of the day", especially when it is not justified. For a short period of time, like when tech and telecom drove stock markets to ridiculous levels in 2000-2001, their wisdom might be questioned, but in the end it is ultimately the long-term that will tell the tale.
Sometimes you do have to adjust your strategy.
I was once what you would now call a Financial Advisor, but I didn't like the methodology that was being used. So, I evolved. The world evolves with time. Old fashioned ideas get replaced by new and updated ideas and methods. It is never easy leading the change. Often it draws criticism from those whose old fashioned methods are challenged and re-fashioned.
If you don't think that stocks are expensive, then prepare yourself for a fairly significant adjustment in the value of your portfolio, while you ride out the storm.
If you want to take advantage of the opportunities that will become available as volatility rises, then maybe it is time for a second look at your current strategy.
There is a common myth propagated by those who promote the ownership of the equity asset class (or stocks) that a strong economy will drive corporate earnings, which in turn should drive stock prices (generally) higher.
But over the last nine years or so, that story has been sold to everyone who will listen (would-be investors mostly) by the investment community who, by the way, have a lot of vested interest in seeing a rising stock market. Even the more appropriate "fee-based" financial advisors who offer a balanced approach (but usually leaning more aggressively toward stocks) reap the rewards when higher stock prices drive portfolio values higher.
And prices have been driven higher and higher (with the hype) bringing the value of those prices into question (because economic growth has not).
As long as they are able to keep you invested, the advice community get paid their commissions. If the portfolio values rise, they get paid a little more. So they all want you to be "fully" invested at all times. That is what pays for their Mercedes', downtown condos and country homes. They sell you the idea that you need to be fully invested all the time.
The investment community gets real nervous when the real world begins to interfere with their cozy lifestyle and rush about telling everybody to "hang in there" when they see that the state of their happy world starts to come under pressure.
A good portfolio manager (very different in many ways from a Financial / Investment Advisor, because they have a legal fiduciary responsibility to always put their client's interests first, before their own: i.e. the way that they are paid), on the other hand, manages risk. That means that they are avoiding over-priced assets and always searching for value opportunities with which to invest on behalf of their clients (which also means that they have more work to do). They don't buckle under the pressure of "the flavour of the day", especially when it is not justified. For a short period of time, like when tech and telecom drove stock markets to ridiculous levels in 2000-2001, their wisdom might be questioned, but in the end it is ultimately the long-term that will tell the tale.
Sometimes you do have to adjust your strategy.
I was once what you would now call a Financial Advisor, but I didn't like the methodology that was being used. So, I evolved. The world evolves with time. Old fashioned ideas get replaced by new and updated ideas and methods. It is never easy leading the change. Often it draws criticism from those whose old fashioned methods are challenged and re-fashioned.
If you don't think that stocks are expensive, then prepare yourself for a fairly significant adjustment in the value of your portfolio, while you ride out the storm.
If you want to take advantage of the opportunities that will become available as volatility rises, then maybe it is time for a second look at your current strategy.
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