selling at the bottom

Selling Out Is a One-Way Ticket

As we know, the markets go up and down. It’s just part of the deal! But sometimes the peaks and drops can get a little intense, so it’s worth revisiting this reality once in a while. 

The most mindful long-term investors are usually less alarmed by the bumps along the way. They know what they’ve got is basically a lifetime pass on a rollercoaster. But it’s the ride to greater potential returns, so they can keep the thrills in perspective. 

What would the alternative be, in our rollercoaster example? If you get spooked on a big drop, there’s no abandoning your seat. “Please keep your hands, arms, feet, and legs inside the vehicle while on this ride,” the announcement cautions. 

It’s best to stay in your seat, your best chance to get to the end of the ride in one piece. 

As long-term investors, we know that we can afford to let each cycle just run its course. Jumping off the ride partway through sets us up for more trouble and more work than it would ever be worth: how would we know when it’s best to jump back on? How do we know that we’ll be able to jump safely? 

We hope this is context enough to allow us to be blunt with you: long-term investing is a ticket for the whole ride, whatever that may mean. 

Selling out? Selling out is a one-way ticket out of our shop. 

Your resources are your business. Where you park your wealth is your decision, completely, and each one of us needs to do what is best for them. 

But we choose to keep at it for those who are thinking about the long haul. We believe it’s the most effective approach to a lifetime of financial wellbeing—and whatever legacy might stretch beyond your lifetime! 

Clients, we strive to communicate our values and intentions clearly. Do you need to clarify anything with us? Call or write, anytime. 

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Play the audio version of this post below:

Selling Out Is a One-Way Ticket – 228Main.com Presents: The Best of Leibman Financial Services

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Expensive Lessons Threaten Teacher Retirements

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An amazing tale of mistakes and worse in the Omaha Public School (OPS) pension fund has been uncovered by the Omaha World-Herald. According to the paper, the fund went from being one of the best-performing funds in the nation to one of the worst.

The most surprising thing? The same issues you and we face in managing our own investments caused a lot of the grief.

• The fund sold stocks heavily at the bottom of the financial crisis, in 2008 and 2009, dramatically reducing its holdings at the wrong time.

• Decision makers sought ways to achieve above average returns without market volatility—almost always a tale too good to be true.

• The risks of alternative investments were poorly understood, not surprisingly. Mumbai real estate, international shipping, Kazakhstan oil companies and distressed housing in Florida? (At least they didn’t buy swampland, as far as we know.)

• When stocks rebounded, the fund missed out—while suffering with poor results from its new strategies.

We endlessly encourage staying the course, hanging in there, living with volatility, avoiding the stampedes, seeking the bargains… in fact, aiming to do the exact opposite of what the OPS fund managers did. It is not easy to do the right thing, but you, the best clients in the world, have shown perseverance and patience when needed.

It is unfortunate that the people responsible for management of the fund lacked the basic good sense that you possess. Clients, if you would like to talk about this or anything else, please email us or call.

The opinions voiced in this material are for general information only and are 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, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

 

A Drop or a Loss?

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Recently a client informed us that another person told her that her primary investment account may be invested too aggressively. We asked what the basis was for that conclusion. The explanation: “If the market corrects, I would lose money.”

Anyone who has followed us for any length of time could probably spot the two questionable ideas contained in those eight words. It is worth discussing, because, in our opinion, getting these ideas right may help our clients build wealth more effectively.

1. There is no “if” about the next market correction, it should be when the market corrects. Why act as if we could avoid corrections when we know they will happen and they cannot be reliably predicted nor traded?

2. Is a drop in the market a loss?

We have many long term clients who have lived through dozens of 3-5-7% drops, a fair number of 10-20% declines known as ‘corrections,’ and three or four bear markets with drops of more than 20% in the major market averages. Yet they are sitting on cumulative gains—account balances in excess of the net amount they invested. One might reasonably ask, “what losses?”

The key to our plan, of course, is remaining on course even in difficult conditions, which we know will happen from time to time. We described our efforts to build a client group with this characteristic in our article Niche Market of the Mind.

It is worth mentioning that much of the conventional wisdom about investing assumes that, indeed, a drop in the market is a loss. Furthermore, since many people behave ineffectively when it comes to investing, the conventional wisdom seems to be that everybody behaves ineffectively—doing the wrong thing at the wrong time, again and again—as if it is inevitable for everyone.

It is almost as if statistics about the average weight and exercise habits of Americans are taken as proof that no group of relatively fit people show up at the gym at 6 AM to work out.

We are grateful to be working with you, a group of clients who are disciplined and fit when it comes to effective wealth-building behavior. If you have questions about this or any other topic, please call or email us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.