Few things in life are all-or-nothing. Good or bad. Black or white. Thus, good decision-making generally requires weighing many competing variables.
For example, I can run out, grab a pizza and fries with an ice-cold soda and a sundae to finish it off. Oh, tasty and delicious! it will definitely feel good in the moment. But, shortly afterward, I’ll feel lethargic. A few hours later, I may have a stomach ache. And, if I repeat this often enough, I’ll increase my chances of long-term health problems.
If, instead, I choose a healthier option, my present moment may feel a little less flavorful. I may rob myself of some initial joy. But, I may have a better chance avoiding those short-and-long term health setbacks.
You see, both choices have good and bad elements, so it comes down to properly weighing each. In the end, I chose to grab the pizza and skip the rest. I added in a salad and went with a glass of water. My compromise allows for some excitement without sacrificing my health as much.
And, that’s exactly how investing works. You’re trying to maximize benefits while minimizing risks. Let’s talk bulls and bears. Bulls are investors who think the market is heading up. Bears are investors who believe it’s going down. Being 100% of either can be problematic.
Why? Because if you’re a raging bull and the markets make a massive downturn, you could be waiting a long time to get back to even. In that time, you may panic and decide to abandon your strategy. If you’re a roaring bear and the markets continue climbing, you may not ever get back in, believing you missed your chance at great returns. That’s why we believe you’d be better off as an investor taking a more calculated view of any situation by evaluating competing information.
Let’s take the current market setup. There are concerns about inflation becoming entrenched in the economy like the 1970’s. And, that leads to fears the Federal Reserve may make a policy mistake trying to curb those rising prices. Even if they can avoid disaster, the Fed’s expected rate hikes themselves have already caused a repricing of all assets including stocks. And, there are fears, more repricing still may be necessary. Taken together, those fears along with the war in Ukraine are causing concern of a global slowdown in growth.
That’s a lot to weigh. Is your head spinning? Given all that, it would be easy to rise up like a big grizzly bear and scream that the market is heading down.
But, on the flipside, a lot of that pessimism is already baked into market pricing. There are also some positive developments. The unemployment rate is currently under 4% (bls.gov), jobless claims continue dwindling (dol.gov) and expectations for corporate earnings are still on the rise (FactSet). Add to that, the wide-angle view of the markets–they generally go up. Thus, over time, it’s been far better to be bull than a bear.
So how should you invest in today’s markets? The first thing my colleagues and I do is weigh all the competing narratives on a daily basis. Sometimes it leads us to being more bullish, other times we’re more bearish. Sometimes we’re playing offense, other times we feel it’s wise to play defense.
The benefits of being right about the direction of the markets go without saying. The real key is if we’re wrong. We still want clients positioned to succeed. After all, we want clients to extract some benefits regardless of what happens in the markets. We’re basically trying to maximize the enjoyment of fun foods (pizza) without taking on much risk for long-term issues. It requires diligence, patience and balance.
Basically the same recipe for life itself!
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.