Every share of stock in existence is owned every single day by somebody. But the market news often refers to “all the selling on Wall Street” on a down day, or “the buying on Wall Street” on an up day. In reality, every share sold was also bought.
This came to mind when we recently read the words of a supposed expert: “investors need to be protected from themselves.” Since “you can’t change people” then the right prescription is a 60/40 or 40/60 mix of stocks and bonds, because otherwise people would sell out at a bad time – in a down market. But every share sold gets bought! So we cannot all be selling at the same time.
The idea that nearly everyone should give up the potential returns of long term stock ownership on a large fraction of their wealth because they won’t behave properly seems wrong-headed to to us. Our actual experience with you over the years says that many people are either born with good investing instincts, or can be trained to invest effectively.
We believe you can handle the truth. Long term investing requires living with volatility, the ups and downs. This is not appropriate for your short term needs, of course, for which you need stability.
In these times when bonds pay so little, insistence on a significant allocation to a sector where returns are likely to be historically poor for many years seems short-sighted. Particularly when used to shield true long term money from normal stock market action.
Let’s be clear: our philosophy is not for everyone. History suggests that about one year in four, broad stock market averages are likely to go down. If you can’t stand that with some fraction of your wealth, our approach is not the right one for you.
Clients, if you would like to talk about this, or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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