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Steady Over Sexy Could Save Your Portfolio

Steady Over Sexy Could Save Your Portfolio

March 02, 2023

Steady Over Sexy Could Save Your Portfolio

Fortune magazine wrote a recent article, "Steady Over Sexy Could Save Your Portfolio".

Like the picture above, an individual who is investing in the market must remain steady, not moved by their emotions, what the latest headlines say about a coming recession, nor be moved by what "others" are doing regarding their investments.  The steady individual is a long-term investor.  They are prepared for down markets when they come and are patient as they have a long-term financial plan in place.

Fortune stated in their article, "that if the long-threatened recession ends up slamming the economy, the stock market likely will be brutalized."  I want to point out a few things about that statement.  Read at face value, it can be quite alarming.  Notice first that it states, "If" the long-threatened recession.....  Frankly, the "jury" is still out regarding whether we even experience a recession of any significance, or perhaps we experience a soft landing.  A soft landing or even a slight or mild recession doesn't necessarily mean that the economy will be slammed.  As we continue with Forbes rationale, the stock market "likely" will be brutalized.  There is a big difference between likely and will.  So here we are with "speculation" about what-if scenarios.  Does that help you or I in the grand scheme of investment knowledge?  No.

The picture above also shows others around our "steady" individual, scurrying about in all directions.  Many individual investors are doing just that.  I read recently of a gentlemen who wrote on a message board that his 401k is down significantly and he doesn't know what to do.  I am sure he is not alone.  First, I would recommend he contact the investment firm and attached advisor to that 401k and get some advice right now.  That's their role.  Others, their portfolio values being down, begin to look for the "sexy" investment.  Something that could "jazz" up their portfolio and make it "alive" again.  On my twitter time line, I get messages from individuals who are short the market.  Being short means that you believe the market will go down.  Challenge is, it's a tough game, yet, the ones that cross my timeline end up suffering.  They think it's "sexy" to be short.  A contrarian mindset that surely will reap them results.  What's the main challenge of being "short"?  The answer is, how high can a stock price go?  Answer, infinity.  How low can a stock price go?  Until it reaches zero.  It's a fools game, and a gambler mentality at that.  It's the same with traders who buy and sell back and forth.  All that frenzied activity, like the picture above, and yet, their eyes are glued to the monitor trying to scalp a few bucks here and there.  Question is, did they end up more successful than the long-term investor, did they benefit paying additional taxes from all those buys and sells?  Was it worth all the emotional turmoil that one has to deal with when they adopt the trader mentality?  No, for most it really isn't.  Sexy perhaps, prudent? No. 

Fortune proceeds to discuss in the article what areas should investors seeking positive returns look to in the way of investments.  They share three equity groupings that they believe will stand to do well over the next 12 months, especially if the recession arrives.  The three groups that they discuss are banks, defense and health care stocks.  I should point out that the term "defense" in this case doesn't mean defensive stocks that focus on companies that sell products or services that will continue to do well regardless of the economy.  These type of companies would be those who sell toiletries, personal hygiene products, food, drugs, tobacco, alcohol, electricity and gas, to name just a few.  No, when Fortune says "defensive" they mean military products.  They point out their belief as to the reasons why individuals should invest in those type of investments.  I personally prefer the non-military version.

Over the last couple of years, the money managers that my clients and I entrust their money to be managed have focused on large cap stocks based in the US.  Why do that?  Well, regardless of the economy, and especially during recessionary times, those companies have much "deeper pockets" to fund the ongoing expenses of running a company, advertising, and most importantly, they are well established and have excellent brand names.  The picture above describes it best.  Large Cap US companies are like castles with large deep moats around them.  The very size of them, their management, their market share, makes it tough to compete against them and try to "fight" them for market share.  When you try to attack a castle with a moat around it, you have to have vastly superior numbers to even mount an attack, otherwise it's better to seek other competitors to fight and attempt to take away their market share.  Also, the managers are steady in their investment prowess.  They aren't tempted by sexy, as they know that it isn't in the best interest, nor desire of their clients to "chase" possible high returns.  My clients want wealth preservation strategies, prudent growth and to avoid irrecoverable losses.  You accomplish that by not seeking sexy, nor frenzied trading strategies, but remain focused on the long-term investment strategies that our money managers have been tasked.

Peter Lynch, was the head of the Fidelity Magellan Fund from 1977 to 1990.  During his "reign" he returned 29.2% return.  What was it that made Peter so successful?  

Here are some of his quotes.  You will get a clear idea about his ideas, mindset and insights that perhaps you can apply to your own investment strategies.

"The only problem with market timing is getting the timing right"

"Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed."

"The list of qualities (an investor should have) include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, pesistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes and the ability to ignore general panic."

Bottom line.....  Invest with a long-term investment plan.  If adjustments need to be made, make them.  Stay the course.