Rely on money managers for sound investment strategy
“Dear Lord, help me to break even. I need the money.”
— Author Unknown
While this tongue-in-cheek prayer is most typically related to placing a wager, it has come to be the silent prayer of many investors over the last decade as they struggle for growth in retirement and brokerage accounts. The stock market has surely provided much anxiety over the last few years with violent gyrations and uncertain moves created seemingly at times with only speculative news headlines. The market will even react positively to seemingly bad news, and the next week gain it all back on economic data that points directly to a badly bruised and damaged economy. With all this craziness to decipher, it is no wonder that I am often asked if investing in the stock market is the equivalent of going to Vegas and taking your chances with a one-armed bandit. What they are really asking me is, “Isn’t the market random and can we really do anything to impact our experience?” At first blush, it would be simple for many to draw comparisons of random chance to a personal “investment” experience. The truth is that the stock market is, in fact, random in the short term. The moment directly after making an investment the market will randomly move for or against you with little care for your investment strategy or emotional desire. This truth has been the stumbling block of many short-term investors in fast moving markets for many years. A more seasoned money manager understands that the market actually does move in cycles over the medium-term. For a host of apparent reasons, our American markets tend to move in four year cycles based around presidential terms. Additionally, within these cycles are smaller seasonal cycles that can also be managed. Finally, the markets have a significant tendency to trend over longer terms. These “secular” trends last around 30 years with bull and bear market cycles lasting 10 to 20 years in each secular cycle. I know this must bring comfort to many, as we naturally want to believe that we have some control over our destiny. It can’t all just be random can it? I would like to propose that good investing should look less like a high stakes trip to the casino and more like a day gone fishing. I was recently on vacation with my family and spent some time shore fishing with my sons in Ocean Isle. As a novice, I would basically throw a worm on a hook, throw it in the ocean and see what happened. While we enjoyed the experience together, our results were marginal at best. More experienced fishermen start early in the morning with worms as bait to begin to catch smaller fish. They collect the smaller fish and begin to use them as bait as the day goes on to catch bigger fish. By the end of the day, they are catching sharks and other large fish. They pack it up and begin the process again the next day. They understand the waters and other relevant factors and realize that not every cast will produce a catch, but that by the end of the day they will likely leave with a bucket of big fish … And it all starts with a worm. There are basically two types of money handlers when it comes to investing. Money collectors, like a slot-machine, are primarily focused on collecting money through hope, placing it at risk and will occasionally pay out when lady luck rings her bell. Money Managers, like a fisherman, are intentional and focused in strategy with an understanding of the rules of the game. Is there randomness and risk in the market? You better believe it, but the order and efficiency of the markets allow a fisherman to catch what a slot-machine never will.
RC Arseneau is a Certified Financial Planner and lives with his family in Delaware. Please submit any questions or topic requests to AskRc@mail.com.
The information and opinions in this column are provided only for educational and entertainment purposes. Any reference to a financial product or strategy is not to be considered an endorsement or recommendation. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional financial, legal or tax advice. Investment Performance may vary due to timing and expenses. Rc recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.