Trends don’t always pan out. The trend can be your friend, or it can make you look like a fool. Take the month of December, for example. Around the second week I got a couple of phone calls from concerned clients wanting to know if we were planning to move out of the market. We received several more calls over the next week when the markets seemed to be in free-fall.
Folks, it’s natural to be concerned during a rapidly falling market. It’s natural to want to stop the bleeding by getting out and sitting on the sidelines for awhile. But it almost never works out. First, if you get scared out of the market, what’s your strategy for getting back in? I’ve never known anyone who had one, except for, “I’m gonna wait until the market is doing better.” Bad move. You know what that means? It means I’m going to sell low and then buy high! You get frightened and sell your shares. You say to yourself, “Whew, man I’m glad I stopped that bleeding.” Then the market goes up a little bit, but you’re not buying it yet. The memory of the loss is too recent in your mind and you’re still not very trusting of the market. Then it goes up a little more and you get a little more interested, but you say to yourself, “not yet, it’s still too early.” Then the market has a big gain and you buy in, at a 25% premium to the price you sold at. So while those who stayed invested throughout the falling market and the gaining market made a 10% gain on that investment, you lost 10%.
But that’s the nature of humans. We tend to act in a way we think is in our best interests, but it is really to our own detriment. Here at ProVest, we have a system for investing. It won’t always be right. In fact, it can appear wrong for long periods of time. But in the long run, having a proven system, with a plan, then continuing to work the plan no matter the circumstance, most likely will yield good results just on the other side of when you wanted to give up. I want to thank all of you who have stuck with us. It has taken more patience on your part than I ever thought would be necessary. This recent five year period of extremely low volatility has not given us the opportunity to show how our active management style can compete favorably with the old buy and hold method of investing.
If this recent volatility continues, our active management style may give us a leg up as it relates to the stock market. And it could be a year to Make Investing Great Again.