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.

Posted by RC Arseneau on Sep 18 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.