volatility

Buying, Selling, and the Third Thing 

When to buy, when to sell—some believe those are the most important decisions when selecting investments.

But far more consequential for our clients? The portfolio management protocols we use to manage your positions, all the things we might be doing in between the first purchase and the last sale.

This is called rebalancing.

Textbook rebalancing means periodically restoring a holding to a set percentage of the total portfolio value. This means adding shares when prices are lower and paring back when prices are higher. You may see these many, smaller transactions in your accounts when we go through our quarterly trading cycles.

Rebalancing is not about jumping in or out of a position. You may notice over time that we’re generally aimed at buying low and selling high within single holdings. The goal of this discipline is to try to improve overall returns of any holding across the long run—no matter when exactly we got in or when we get out.


Even clients with tenures as short as six or seven years may see holdings where the “net dollars invested” goes negative: as in, the holding has yielded more cash from the sales along the way than ever went into the purchases. And this could be true for shares that might still hold substantial value at the end of their ride.

What may be even more worthwhile, however, are those cases when our timing was “off” in the first place: when to buy. As an example, more than a decade ago our research indicated that copper production was likely to be short of global needs for many years. We identified a copper producer that was, at that time, down by two-thirds from its all-time peak. A bargain, we believed—but then it became an even better bargain.

That is to say, the stock fell. And fell. And fell.

Our outlook did not change, however. We still saw merit in our estimation about the state of copper production globally. So we bought, and bought, and bought in our rebalancing process.

By the time the stock recovered to our original purchase price, we had taken out more than we had ever invested on behalf of clients. Even a misidentified “bargain” can become a historical gain in a portfolio.

The search for good companies to buy is key to what we do. Sorting out when to eliminate a holding is also important. But the work in between—setting and adjusting our percentage allocations and rebalancing periodically to restore those allocations—is where we hope the true value of our work might emerge.

Rebalancing is a great example of the type of activity we mean when we talk about “ongoing portfolio management” and “investment research,” the things that go into our ongoing advisory work.

Rebalancing can help try to mitigate an otherwise disappointing selection, as our average cost per share declines when we add less expensive shares. And it can help us make sure we book profits if we happen to get in on a shooting star. No guarantees either way, but our protocols and discipline have the chance to make both more likely.

Clients, if you would like help reviewing your overall returns by holding in AccountView, 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. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Investing involves risk including loss of principal.

No strategy assures success or protects against loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

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Buying, Selling, and the Third Thing: Rebalancing – 228Main.com Presents: The Best of Leibman Financial Services

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

When Buying “The Stock Market” May Not Be Optimal 

When people talk about “the stock market,” they might actually be thinking of the Dow Jones Industrial Average, or the S&P 500 Index. These lists are what they sound like: averages and indexes of exchange-traded securities.

And one popular school of investing calls for buying index “funds,” collections that offer a slice of what’s happening on one of those lists. The goal is to capture the list’s average return. It’s simple, easy, and relatively inexpensive to seek to replicate those market averages.

But there’s a tradeoff. There have been extended periods when those averages basically went nowhere for many years at a time. The “average” approach means you are by definition going with the crowd. But crowds can become herds, which can turn into stampedes.

This is what happened with the raging Nifty Fifty and again in the Tech Wreck.

Back in 1973, the “Nifty Fifty” stocks were all the rage. Many scrambled to buy and hold these dominating stocks, names like IBM, Xerox, or Coca Cola. One might say there was a stampede into the favored names. Valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%.

It took until 1982 to regain that 1973 peak, before moving any higher: a decade with essentially no progress.

It happened again from March 2000 to 2013, a time that got the nickname the “Lost Decade.” This time, the mania was internet stocks. Technology and communications companies dominated the S&P 500, and investors got excited. Again, more people stampeded in, valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%. Not until 2013 did the index begin to make and hold new, higher ground.

So what was problematic about those peaks? The largest companies became a much larger fraction of the total value of the S&P 500. The top companies in 1973 and 2000 had become worth many times the bottom companies combined.

Staying with the crowd—buying indexes and aiming to capture averages—is not the only way to invest. In those episodes from history, some other sectors fared better than the fallen favorites and broad U.S. market averages. There were those smaller companies, value-style investments, and overseas markets that generally went up during the Lost Decade.

At 228 Main, our core investing principles include “avoid the stampede” and “seek the best bargains.” As such, while the largest companies in the S&P 500 are becoming increasingly concentrated at the top—reminiscent of 1973 and 2000—valuations may be getting stretched once again. We are seeking to have more and more of our portfolios invested other places. (Research is a core activity here, a daily discipline, and we invest a lot of time and energy into it.)

That is to say, we’re seeking opportunities outside the averages. We’ve got our eye on value-style companies—those that seem to provide a lot of current profits, or cash flow, or dividends relative to each dollar invested. We’re seeking companies operating in faster-growing economies, the ones that provide food, shelter, transportation, communications, or energy (and are trading at more attractive prices). We want to know what’s happening with smaller companies, the opportunities that don’t fit the profile of those mega-sized names that dominate the market averages today.

There are tradeoffs involved with either approach.

  • When we follow the averages, we risk following the crowd straight into a stampede.
  • When we buy the bargains, our particular favorites may get cheaper while the darlings of the market are still climbing higher. Our portfolio performance could generally lag a red-hot market.

To be clear, we are still invested in those large U.S. growth companies we’ve mentioned. But, clients, we’re more diversified now than we’ve been at any time since the early 2000s. Even though we may be on the right track for long-term investors, it can be lonely to be contrarian. So it’s times like these that it helps to check in, take the long view, and make sure the methods suit the goals.

And for us, it’s the pursuit of capturing the potential growth, for the long run. No guarantees, but that’s what we’re working toward.

Clients, please call or email us if you would like to talk about this or anything else.

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 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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When Buying “The Stock Market” May Not Be Optimal – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

One Simple Goal

Hope, optimism, belief, notion… In our line of work, it doesn’t matter how you say it. We’re banking on the idea that, overall, we’ll see more up than down.

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The Ultimate Hedge: How Do We Enjoy the Journey to Long-Term Wealth?
A road with yellow text that reads: Let's go

Suppose someone told you, “I’m worried about what will happen in the future, so I want to make sure I have less money when I get there.”

This makes no sense, and yet, it is essentially what conventional investing wisdom tells anxious investors to do: “Hedge your risks! Seek safety!” But what does this mean? When investors choose “safety,” they are sacrificing their growth over the long term. In return for stability in the short term, they are choosing a smoother ride to a poorer future.

It’s human and normal to feel concern for the future. But choosing, in the moment, to soothe that short-term fear about long-term returns by avoiding volatility means you may be sacrificing those exact long-term returns that would soothe your concerns.

And investing for the long term doesn’t mean foregoing spending—it means a little bit less short-term spending now in exchange for (hopefully) a little more spending overall, in the long run. Spending more money now does mean that you will miss out on opportunities to invest that money for compounding returns, so it can be another road to a poorer future.

Choosing to invest for the long run is not a path of deprivation. Suppose the worst of the worst just happened last week: nuclear war broke out, or a giant asteroid hit Texas, or maybe you got struck by lightning. Should the worst happen, you are not likely to go out wishing that you had invested more conservatively: “If only my balances hadn’t wiggled so much! If only my returns had been lower!”

But maybe you could go out a little more content knowing that at least you committed to a possibly-more-abundant path: you chose to focus on the long term, and maybe you enjoyed some of it along the way. Maybe you found the perfect house for you, maybe you took that amazing vacation with your loved ones that you’d been dreaming of. You made your life happen along the way.

We invest for the long run; we spend for the long run too, so to speak. We don’t invest for a poorer future; we don’t spend beyond our means. (The road to broke is never worth it.) And, as always, you need to understand where your short-term money is—and keep it out of your long-term buckets.

We think the smart money is in investing for the best possible future. But we never know what the future may hold, so it does make some sense to hedge your bets. At 228 Main, we don’t tend to think of hedging investments in terms of bonds or gold or real estate—or any conventional option that sacrifices returns for Future You in order to pander to the fears of Current You.

Instead, you could continue investing for long-term growth and spend some money on the ultimate hedge: living your own best life.

Ready to talk about what this means for your portfolio? Call or write, anytime.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

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Play the audio version of this post below:

The Ultimate Hedge – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

What We Do—But Mostly What We Don’t

Organizations sometimes use “mission statements” to capture their core focus or values. In a sentence, why does this company exist? What is its main purpose? What’s the goal?

It’s a useful exercise. If we had to spit it out, what would we say we do? We invest.

There are a lot of ways to flesh out and explain this mission (and we do that, often, in our communications!). But we also consider ourselves contrarians. So it makes sense that we also like to explain our work in terms of what we don’t do.

We invest… but not with guardrails. No training wheels, no buffers, no timing schemes. We don’t give guarantees, and we will not offer a false hope of market returns without market volatility.

Why don’t we like that stuff? All of those things cost money or opportunity—or both—and thereby limit our future wealth.

So you won’t see us whipping out any literature about risk that confuses it with volatility. You won’t see pie charts that arbitrarily slice up a portfolio. We won’t pretend to know better than you about your goals or how you live your life.

We seek to invest for the long term when the cost of owning a percentage is lower than the value of the ownership opportunity, in our studied opinion—even as we know that the market price will fluctuate, even as we know we will not always be right.

But a smoother ride to a poorer future? No thanks.

Clients, want to talk in more detail? Call or email, anytime.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

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Play the audio version of this post below:

What We Do—But Mostly What We Don't – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://228main.com/2023/07/19/what-we-do-but-mostly-what-we-dont/.

In Any Language, There’s One Simple Goal

Hope, optimism, belief, notion… In our line of work, it doesn’t matter how you say it. We’re banking on the idea that, overall, we’ll see more up than down.

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If All Your Friends Did It…
photo shows a pile of pigeons sitting on top of each other on a telephone wire in a partly cloudy sky

“If all your friends jumped off a bridge, would you?” Does this line give you any childhood flashbacks? (Rhetorical questions abound in today’s reflection!) We’ve been noticing the number of headlines featuring the word “concern.” 

  • “Is this development a cause for concern?” 
  • “Top officials express ‘concern’” 
  • “Latest numbers raise concern” 

Whether it’s about the latest COVID-19 ripple effect, consumer prices, or bottlenecks in different industries, there seems to be plenty of concern still going around. 

We’d like to pause here, though, for an important distinction: “concern” is not the same as “panic.” Life is full of “troubling developments.” We get to choose which stimuli rev us up and which improve our view of reality. Aren’t we better for having a more accurate picture? 

On a recent morning, I noticed lots of action online and in the news that might have startled some investors. I decided to spend a few hours in the office that I hadn’t planned on, just in case there were calls to catch from you, clients. There wasn’t a single ring. 

I should’ve known better. 

“If all your friends jumped into a panic, would you?” Of course not. In fact, there’s that other classic line that makes a lot more sense: “This is no time to panic.” 

Panic rarely helps. Those bursts of energy may have served us when it was time to run from an animal of prey, but these days that’s not exactly a regular demand.

Soothe your system, then let’s get some perspective, gather the facts… and go from there. The leap to panic is a shorter—but way more costly—trip. Clients, want to talk through anything troubling? You know I’m here for that. Write or call, anytime, and we’ll sort it out together.

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Play the audio version of this post below:

If All Your Friends Did It… – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

I. AM. EXCITED.

Maybe you’ve noticed… but I can be an enthusiastic fellow! But some believe emotions don’t have a role in investing… I’ve got some thoughts.

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Growing Market Geniuses
photo shows two silvery arrows pointing opposite directions on a yellow background

Author F. Scott Fitzgerald wrote, “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” 

What if I told you—the best clients in the world—that you (yes, each and every one of you) have that first-rate intelligence? 

See, there’s something in our work together that tests this idea, just about on a daily basis. When you join us, you learn to live with the volatility in the market: it goes up and down, and we accept this as a feature of the ride. 

Very often, it goes down faster and deeper than it goes up. We may expect a 5% drop around three times a year: we might see a 10% drop around every two years. Meanwhile, gains of 10% are few(er) and far(ther) between: we’ve only seen it twice in the S&P 500 this century and only four times in the whole of the last century. And those gains have usually come shortly after one of the big drops. 

But we wouldn’t be in this business if, in the long run, the market went down more than it went up. 

So what gives? There are two seemingly opposing ideas about the market: 

  1. Drops go down faster, farther than gains go up.
  2. It goes up more than it goes down. 

Clients know the secret: the first idea is all about daily events, and the second idea is about the long haul. No guarantees, of course, but it is possible that these things can both be true. We just care less about the former. 

Therefore, if you consider yourself a member of the best client base in the world, then I consider you to be of first-rate intelligence. 

We’ve grown a community of geniuses here at 228 Main. Want to talk more about what this means for you? Write or call, anytime. 

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 indices are unmapped and my not be invested into directly. 

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Growing Market Geniuses – 228Main.com Presents: The Best of Leibman Financial Services

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

In Any Language, There’s One Simple Investing Goal

Hope, optimism, belief, confidence… In our line of work, it doesn’t matter how you say it. We’re banking on the idea that, overall, we’ll see more up than down.

Want content like this in your inbox each week? Leave your email here.