6 Steps to overcome Investing Paralysis by Analysis

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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

 

 

 

 

 

‘Twas the Day of the Election…Stock market rally or sell-off?

 

img_59101Dear Mr. Market:

It’s that time of year again….here comes the holidays. One of the most famous Christmas poems ever begins like this:

‘Twas the night before Christmas, when all thro’ the house

Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care,

In hopes that St. Nicholas soon would be there;

What if we changed a few words to reflect what Mr. Market will be thinking about instead of sugarplums and Christmas stockings? What is he thinking on Election Day?

‘Twas the day of the Election, when all through the nation

Every citizen was encouraged to get to a voting station;

Constant stories of Wikileaks and groping

Had every American and the stock market moping;

The media was franticly filling their time with endless chatter

All in hopes that our eyeballs would think a new President would matter;

Whether you’re liberal or conservative we all want a sound future for our girls and boys

As it relates to the stock market it simply prays for an end to this noise;

So goodnight to all and may you wake tomorrow

Knowing full well that some will be joyful and others in total sorrow.

We’ve obviously abbreviated our stock market poem to center on the real question so many investors have: Will this election result drive the markets higher or lower?

If you’ve studied the stock market long enough you’ll know that the one thing that makes it nervous is uncertainty. Prior to yesterday’s strong market rally, stocks logged a nine-day losing streak, which was the longest consecutive slump in 30 years. For months the market had baked in an almost guaranteed Clinton victory but with the advent of another FBI probe into her email practices, the possibility of Trump winning began to create uncertainty again and rattle the markets.

As we noted in the most recent edition of our newsletter, the Guide, we believe the way we search and interpret the news will have an impact in how weak hands play their cards at the table. In other words, if you came into this election as a hardcore fan of Trump or Clinton and the results don’t go your way, you will naturally be more inclined to think doom is lurking around the corner. The reality is that with the absolute circus and divisive lead-up that this election has brought us, we’re bound to see about half of the country in tears. Will that impact the stock market though?

Yes…of course it will, but not in the way you may expect. In the short-term you will see a fairly sharp rally or sell-off so your best play (if you’re a trader) would be to take advantage of the volatility. If Clinton wins you will see the markets bump up nicely but then flatten out towards year-end as the reality of four more years of similar economic policies get extended. If Trump wins, it’s our opinion that the market will sell off in a fairly sharp manner but that you’ll see a rebound that will negate much of that. Like him or not, one thing that his potential presidency would bring is change. Lastly, once the short-term effects are played out, the other main guarantee is that whoever wins will face political gridlock. (you can take that to the bank!)

Over the longer-term you will see Mr. Market adjust to what he is given. As alluded to previously, the one thing that will be alleviated is uncertainty. If your investment time horizon is longer than the end of this week, however, you should be allocated properly in advance of any unforeseen event. We’re currently positioned to take advantage of surprises we don’t know about but also very aware of the reality that the markets will eventually gravitate to focusing on actual economic growth or lack thereof.

We believe the market has pleasantly surprised most investors this year. Although we predicted a low to mid-single digit type year back in January…most of the investing world was on the other end of that spectrum. After steep corrections in late 2015 and the worst start to any year in history, it may have understandably been difficult to listen to our advice. So, what’s the advice now?

We’ve lowered exposure to both stocks and bonds as we wrap up this year. Many of our portfolios have at least 15% (and many upwards of 30%) allocated to assets that have low to zero correlation to the market.

Lastly…what if neither win? Albeit an unlikely scenario, there are some that want to hang on Trump’s vague allusion to “keeping the country in suspense” if he loses and doesn’t want to concede. In our opinion this was more of his brash and not too polished debate skills and there would be someone in his ear to settle down his ego with the reality of a loss.

i_voted_sticker-r9e8abad0ab5d4e9fbe7d9321b3b15060_v9waf_8byvr_324We’ll have a “winner” of some sort tomorrow and that will allow Mr. Market to digest what
he’s dealing with over the next four years. Give him some certainty, so get out and vote!

Brexit too shall pass…

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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

Who does Mr. Market vote for…Donald Trump or Hillary Clinton?

Dear Mr. Market:

160323171742-hillary-clinton-donald-trump-investors-780x439How dare we put you on the spot like this?!? What an awful question! How will you (the stock market) react if Trump wins or if Hillary wins? By the way…as an aside….a great client of ours recently asked why everyone refers to Trump by his last name and Hillary by her first name. Why is that?

Depending on which side you’re on, this question may initially seem like simple semantics but it’s not. Are you “presidential” if you roll with a campaign based on your first name? Do you “feel the Bern” or did you “Trust in Ted”? Whether you’re a proponent of Hillary for President or Hillary for prison…it’s still Hillary. Where are we at America?

At My Portfolio Guide, the one thing we typically don’t shy away from is having a clear opinion. There are some great firms out there that simply can’t give you one! You’ll hear what you want to hear. They fear losing your “vote” or ruffling feathers. Yes…we understand that balance too, but as much as our job is about deciphering news versus noise…it does become important to take a stance. 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