6 Steps to overcome Investing Paralysis by Analysis

unknown-5

Dear Mr. Market:

It sure seems as though you’re stuck in a rut. Just a few weeks ago Wall Street traders were donning embroidered hats with “Dow 20,000” on them in anticipation of reaching this stock market milestone. As investors approach proverbial milestones, their thinking and decision making process often begins to falter. How was your mindset when the Dow Jones cracked 14,000 in October of 2007 versus not too long afterward when it was at 6,600 in March of 2009?

The number of investors that are still sitting in cash from way back then is mind boggling! Do you take a long time making decisions? Are you worried about making the wrong choice with your investments and therefore don’t take any action? Do you analyze all the options but later on kick yourself seeing that so many opportunities have passed you by?

If any of these questions resonate with you, it’s likely that you suffer from paralysis by analysis! Here are a few steps to consider and break free of this condition:

  1. Crystalize the objective – The first step in overcoming paralysis by analysis is to truly understand your goal and timeline. Not everything is accomplished in one day. Your end goal will come to you by taking action but you must avoid being overwhelmed with a multitude of choices or an instant desire for perfection.
  1. Rip the Band-Aid off! – This is obviously much easier said than done. Advising someone who overanalyzes and is prone to being indecisive, will not likely yield in a comfortable transition. There are occasions, however, where “going all in” makes sense. Practice taking small action steps that lead you to becoming confident and decisive. Once you realize that making small mistakes doesn’t always derail the end goal, you will be that much closer to breaking free of larger decisions that demand your action.
  1. No rearview mirror needed – Paralysis by analysis can creep into your portfolio if you continuously kick yourself for past mistakes. We can learn from history but hanging on to the past can have serious negative consequences. History doesn’t necessarily repeat itself and sometimes a fresh start is exactly what you need to break through. Be forward looking as opposed to focusing so much on what has or has not happened before.
  1. Tip-toe in the water – The typical investing approach to “tip toeing into the water” is basically dollar cost averaging. As opposed to going all in at once you may be more comfortable with more of a phased or stair-step strategy. Another way to implement a plan like this is to invest your idle cash in thirds towards your established target allocation. Ideally you should select trigger points when the market is showing weakness. Keep in mind that once you begin this course of action you must commit to completing it.
  1. Declutter! – Most people can’t park their car in their own garage due to all the junk that has piled up over the years. Your investment portfolio and the decisions (or lack thereof) can become very much like an unusable garage! Simply get rid of what you don’t need. If you have investments that aren’t in line with a solid plan…dump them now and don’t look back. If you’re interviewing financial advisors and there are clearly some poor choices, don’t even meet with them. Why spend time and not advance a decision due to energy being wasted on distractions?
  1. Delegate it to a pro! – Let’s put it this way…. If you had a financial advisor who got nervous at key stock market milestones and stayed in cash far too long while the market took off to set new record highs….you would fire them, right? If that financial advisor is YOU…it might be time to fire yourself! You may be very intelligent, perform tremendous due diligence (almost to a fault), and of course have your best interest in mind; but if you don’t have a clear and decisive investment strategy, you’re simply not capable of optimally managing your investments.

thelegendarybrucelee

 

 

 

 

 

Brexit too shall pass…

images-1

Dear Mr. Market:

You hate uncertainty; that fact has been established from the day you began trading. If the rest of the investing public hasn’t heard about “Brexit” vs “Bremain”…it’s not necessarily a bad thing. There is always something to worry about and now with a vote by the United Kingdom to leave the European Union the potential implications and chants of uncertainty will continue to create worry and panic.

Ironically enough, even amidst all the doom and gloom, the world is not that much different than before the vote. Although the U.K. surprised many with its vote to leave the EU, this decision and the potential fallout will take a couple of years to fully play itself out. Even though there will clearly be political uncertainty and initial volatility (which is natural)…the UK will have two years to negotiate the terms of its exit and establish a new relationship with the EU. Although there won’t be a shortage of opinions, this doesn’t imply an automatic death to the stock market!

It’s times like these that are EXACTLY why people overreact and make critical mistakes. Once people get over their initial reaction (shock, surprise, fear etc) the markets will see relief in knowing there is a result and a definitive decision. In other words…there will be some basic element of certainty and that allows markets to naturally correct and go back to moving based on actual fundamentals as opposed to speculative forces or fear.

What should one do in the near-term and will this lead to something worse? Continue reading

Q1 is in the books – how does the rest of 2016 look?

Dear Mr. Market:

2016 #3The first quarter is in the rear view mirror and what a wild ride it was! The stock market started the year with the worst first 10 days in history and we finally experienced a ‘textbook correction’ of over 10%. Perhaps the most shocking part is when it was all said and done, Mr. Market rallied in March to finish out Q1 just above break-even. Volatility like this is typically played out over a 12-month or longer cycle, not in one quarter.

The question that investors are currently asking is … how does the rest of 2016 play out? Turn on your television or open any printed material and you will quickly be overwhelmed with the various talking points. Just look at a few of the headlines that have popped up last week:

  • Housing starts declined -8.8% in March.
  • Auto sales fell at a -14.6% annual rate in Q1.
  • Business investments in equipment fell -8% the first three months of this year.
  • Large declines in military spending by the government in Q1 will add 0.1% percentage points to the real GDP.
  • Industrial production dropped -0.6% in March coming in below consensus of 0.1%.
  • Production of high-tech equipment increased +0.5% in March, up +2.1% versus a year ago.

These are real economic data points that have driven financial headlines over the last few weeks. In our opinion here’s what they mean (or don’t) and how we think the rest of 2016 will play out in plain English: Continue reading

March Madness: Final Four Investing Bracket 2016

March MadnessDear Mr. Market:

The entertainment and shock value you provide us with the stock market might meet its match over the next few weeks. Are you ready for some surprises and wild finishes? That’s what March Madness brings each and every year! It’s also an opportunity to take a high level view of the current investment environment with what lies ahead.

Six years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market. We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

This year we will dive right into our investing bracket looks and how we think the remainder of 2016 will play out.

Click here to see the entire bracket.

To set the table let’s take a quick moment to recall last year and the undefeated Kentucky team. They came into the Final Four 38-0 and were a virtual lock to win it all but as you may remember the Wisconsin Badgers shocked everyone and provided the surprise millions of fans tune in for every year! This type of “upset” is exactly how we think 2016 will pan out in the Large Cap asset class.

Large Cap

Five years from now people will look back at 2015 as a year that the stock market extended its bull market run for one more year. Investors will exhibit a short-term memory lapse and forget that it actually was a very rough year with heightened volatility, the first correction, and a market that actually turned in negative numbers if you looked “under the hood”. The problem is…most people will not remember this and only look to see the S&P 500 finished positive +1.38%.

Without the “FANG” stock phenomena, however, 2015 would have been very negative. In other words, Continue reading

MPG Core Tactical 60/40: August 2015 Performance Update

MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

If you’ve never experienced a stock market correction until now (technically defined as -10% or more), you have either never invested or have only been investing since 2012. For the vast majority of others, you should know that markets “correct” on average at least once every 12-18 months. One reason why this feels worse than other corrections is because we just went 47 months without a correction of -10% or more! (third longest streak on record)

For a refresher, stock market corrections are short and sharp declines of -10% to -20%. They’re typically accompanied by sensationalized stories such as the European sovereign debt crisis, Greece’s exit from the Euro, or the “fiscal cliff”. For all those investors that ducked for cover and went to cash during the last correction you saw the Dow Jones move up over 6,000 points. Were you able to correctly “time” your reentry into the market? No…and you’re not alone. No matter what you read or hear there is not a single person or professional advisor that owns a crystal ball and can consistently time the market.

If you’re new to this monthly series…remember what we’re doing. This exercise, as we like to call it, is not an attempt to pick the best stock or “time the market”. We leave that futile task to those who own time machines and accurate crystal balls. For a refresher, see our first article on the MPG Core Tactical 60/40 Portfolio.

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (September 1, 2015).

Click here to compare our portfolio against the benchmark.

From the last week in July to this writing the MPG Core Tactical 60/40 portfolio went down -4.49%. How did the rest of the markets do? Continue reading

MPG Core Tactical 60/40: July 2015 Performance Update

MW-BB798_sm6040_20130422180557_MD

Dear Mr. Market:

Yes…the stock market is down. Your portfolio is down. There is no way it is not down. We just said the word “down” three times in a row. Get it? Everything is down.

If you have a decently designed and intelligently constructed portfolio you are actually DOWN more than than the overall stock market! What does that mean? Most people look at the Dow Jones as their benchmark. That’s what the media tells you every night as to what’s happened. The media reports on the Dow Jones as though it’s an accurate index to let you know how the stock market is doing. Nope….As you become a more savvy investor you will learn that that the Dow Jones is just an antiquated index that means nothing. Yep….we said that! The Dow Jones means zilch!

Make no mistake about it. This is one of the strangest and least predictable markets ever…

If, however, we were to tell you the Dow Jones was about to get blasted and go down to 6,000 (currently at 17,500) it would be easy to lead you down that road. There are plenty of reasons why the market will get hurt more. Ironically enough…we could paint just as equally convincing a story of how the Dow will go to 20,000! That’s where we’re at right now. When you can find two opinions so extreme regarding the end results, yet each has its merits, you’re in a very precarious market environment.

Continue reading

MPG Core Tactical 60/40: June 2015 Performance Update

MW-BB798_sm6040_20130422180557_MD

Dear Mr. Market:

Like clockwork you set us up for another stretch of pretending that you wanted to inch up higher and then sold off the last week of the month. How you behaved in May is similar to what you did in June except this time your volatile temper began to show more of a resolve and rattled investors. You began the month with some semi-positive economic news along with dovish Fed commentary all to have it dampened by the Greek debt fiasco.

The S&P 500 lost -2.17% for the month of June. The poor performance turned in by our domestic markets pales in comparison to what has transpired in China. If you’re waiting for another proverbial “bubble” to burst…perhaps it’s here. In about three weeks Chinese stocks sold off sharply losing -30%. We’ll talk more about this later in this article but for those “experts” claiming that this is a good time to buy Chinese stocks, consider the reality that they are still quite expensive. If you think our markets are frothy after a six-year bull market run and a current P/E ratio of 20.5, the median P/E ratio for Chinese companies is still at 55 (down from 108!).

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (July 2, 2015).

Click here to compare our portfolio against the benchmark.

What adjustments did we make? Continue reading