risk management

Trends May Not Persist: What’s on the other side of the peak? 

The most pertinent warning for investors in the AI age might be, “Trends may not persist.”

We humans tend to believe that current conditions or trends will continue. In recessions, we can scarcely imagine how the economy will ever recover. And when the markets get into bubble territory, it seems the good times will never end.

That was certainly the case in March of 2000, at the peak of the Internet Boom. The S&P 500 had basically tripled in five years and became dominated by large technology companies.

“The internet was going to change everything,” they said—and that story came true.

But valuations had gotten so excessive, the S&P 500 suffered a Lost Decade when the trend changed: it took nearly 13 years on a round trip to nowhere. Fortunately, the S&P 500, composed of the stocks of large U.S. companies, is not the only game in town. Small and mid-sized companies, value stocks, international companies, and other opportunities held up much better, sometimes even making gains during the flat spell.

This history lesson is key to why we are not chasing the index here at 228 Main, especially right now. Looking for bargains, avoiding stampedes—these fundamental principles help us avoid the extremes. Most of us don’t have thirteen years to wait for a market recovery, so it makes sense to strive to be in those parts of the investment universe that are more reasonably priced, now.

As in 2000, the index has become dominated by large technology companies, this time as part of the AI boom. We are paying attention to our principles, mindful that these trends may not persist.

We pay, temporarily, in performance. Our approach has us lagging the S&P 500 recently; we’re not going up by as much, but our efforts now are made in an attempt to potentially go down by less when the bust comes. No guarantees. But we’re turning to history as a guide.

Clients, now as ever, reach out any time with your questions. We’re here to help.

Neither the past performance of the S&P, nor the described methodology, is a guarantee of future returns.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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The Benefits of Living in the Gray

It would be nice if the path were always clear or the choice always obvious. But a life aimed at the long haul is a little more complicated. No guarantees, but at least there’s plenty of good company here in the messy real world.

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Oh, the Prossibilities!
The human brain is amazing… except when it isn’t. How else do you think the world ended up with a Shark Week?! Low-probability events, fear, fixation, and how to clear things up—in this video.

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It’s All Black-and-White (Except When It’s Gray)

It would be nice if the path were always clear or the choice always obvious. But a life aimed at the long haul is a little more complicated. No guarantees, but at least there’s plenty of good company here in the messy real world.

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In Financial Matters, You’ve Got Two Choices

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Exploring the Prossibilities!

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Probabilities Versus Possibilities
photo shows a goldfish with a shark fin strapped to it swimming with the fin above water

Our energy is a finite resource. Sure, we consume food and we sleep to replenish our bodies, but they too don’t last forever. The basic formula for kinetic energy requires velocity—movement. But we don’t always direct our movement in the most skillful ways.

For instance, we humans are great at focusing on low-probability events. After all, these are the events that catch headlines: “if it bleeds, it leads” the saying goes. (I mean, how do you think the world ended up with Shark Week?)

We wrote recently about bear attacks, among all things, and now we’re thinking more deeply about these ideas. What if instead of placing so much energy into unlikely (albeit scary) events, we limit our focus a little: what if we focused more instead on what’s probable?

In the markets, we hope to see at least the typical patterns of probability. Some ups and downs every year, a general trajectory of more up than down across almost any stretch of five or more years. No guarantees. But these are the general probabilities of the long-term proposition.

We don’t lock into losses by treating drops like the end of the world. Of course fatal shark attacks do happen, they are real, but we don’t stay out of the pool because one time somebody got eaten out in the open sea. That just wouldn’t make a ton of sense, huh?

The possibilities are endless, and they could consume us until our last breath. Let’s direct more energy toward what’s probable.

Clients, want to discuss what’s probable and suitable for your situation? Reach out anytime.

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Probabilities Versus Possibilities – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Minding the Bears
photo shows a rocky mountain trail

One recent morning, I was lucky enough to be hiking on a mountain trail with my sister. The air was crisp and clear, the smell of the pines was thick—a beautiful day.

We came across animal tracks, then more animal tracks, on the muddy parts of the trail.

We knew before we started that there were bears in the neighborhood. (In fact, one might say we were in the bears’ neighborhood!) The tracks seemed to have the shape of claws, with a size and depth that impressed me with a desire to avoid a meeting.

It seemed as good a time as any to turn around, so we did. My senses were on high alert as we began to descend. We reached the trailhead without incident.

Later, I looked up the facts about bear attacks. Only one out of 175 million people worldwide is the victim of a fatal bear attack each year, fewer than two in the whole United States.

The danger I perceived was far larger than the actual risk involved.

This reminds me of where we are in the investment markets. It seems to be the economic equivalent of a beautiful day: the market has had a sharp rebound from the pandemic lows of 2020. Yet some are concerned about the bear (a bear market meaning, of course, a big decline).

Just as there are plenty of bears in the wooded mountains, there are regular declines in the stock market. Some estimate that 10 to 15% declines are routine each year. But fear of the bear often seems to be greater than the actual damage a bear market might do to long-term investors.

Learning to live with the ups and downs, one may benefit from long-term growth in value. But fear of a decline that proves to be temporary—and rarely truly catastrophic—may lead one to sell out long before money is actually needed, with future gains foregone.

Clients, thank you for inviting us to hike the trails of your life with you. If you would like to talk bears or mountains or markets, please email us or call.

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Minding the Bears – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Your Safety Net Is Not a Hammock

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Your Safety Net Is Not a Hammock
photo shows a safety net in midair

The advancement of technology has helped humans perform more tasks more safely.

Backup cameras and drift warning systems help curb preventable accidents in our vehicles. Even in our pastimes, technology can monitor more risks and dangers than ever. Big-wave surfers take on, well, bigger waves, prepared with more data about the conditions than ever before… not to mention a jet-ski nearby, ready to help anyone who crashes.

Such monitoring technology may allow us to take on more risk, but this doesn’t mean we ought to. Specifically, this tech becomes dangerous when we let it take over and do our thinking for us too.

Some providers offer tech tools to help “measure” risk tolerance. The tools are, in theory, designed to increase transparency. If we know more about the dangers present, shouldn’t we be able to make better decisions?

For some investors and clients, it’s perfectly comfortable to use such scores to determine the “appropriate” investments. The trouble is that then the tech tool is doing the interpreting, moving from observation to decision.

That middle part—the thinking, the choosing, the deliberation—that’s where we like to focus our energy in this shop.

Many tools may seem like safety nets, keeping us from ever falling too hard, but they should not replace the process.

You may remember The Flying Wallendas, a family that for generations has performed high-wire stunts (one of them crossed the Grand Canyon on live television a few years ago). The family avoids nets when they can.

Why?

The net may make you feel better about the risks involved, but it’s counterproductive—and dangerous—if it leads you to behave with less awareness, intention, and energy.

You must behave as if the risks are always present… And carry on, making the best decisions possible.

Clients, wondering about nets, risk, and more? Let’s chat: call or write anytime.

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Play the audio version of this post below:

Your Safety Net Is Not a Hammock – 228Main.com Presents: The Best of Leibman Financial Services

This text is available about https://www.228Main.com/.