When Perceptions Change, Should Your Portfolio Change, Too?

David B. Armstrong, CFA Weekly Market Commentary

Share this post!

The markets were surprised by Trump’s tweet last Sunday declaring he was raising tariffs from 10% to 25% on the initial $250 billion of Chinese imports…and implementing tariffs on the remaining $300+ billion as well.  

However, this should not be a big deal to many of our readers. Those who don’t need cash right now are just fine. 

Here’s the plain old, straightforward truth…We don’t know what will happen, nor does anyone else. As investors, we must all hope for the best while continuing to plan for the worst. 

Investing Behavior

We all know by now that uncertainty surrounds us here in investing land.  Learning to accept that is instrumental and important when creating an investment strategy. I’ll go out on a limb and claim (admittedly with zero factual evidence to back it up) that every investment strategy ever invented has bombed at one time or another even if it has been successful over the long run. That includes the strategies at Monument along with the strategies created by the smartest investors out there. Even Buffett.  

Why? Because of human behavioral traits. We all have them. They are fostered by the racket we are exposed to on a daily basis.   

Learning to filter out the racket is key. Some things are important, and lot of things are not. This last week was a perfect example. Weve had a great market and that puts everyone on the lookout for a pullback…it’s the itchy trigger finger” syndrome.   

I think weve experienced a lot of over-reaction to news that has no immediate discernible outcome.  

In other words, what’s changed? I know there is a lot of speculation that things COULD CHANGE, but really…whats changed?   

What HAS really changed? Perception. To some—let’s call them the “undisciplined” or the “impatient” investors—perception means everything.  To others, it means nothing. 

If you have a well-diversified portfolio, there will be a time when you hate something you own. But for those of you who have come to terms with that, you have an advantage. You’re like the casino that wins over the long-term because the odds are in their favor 51/49. Time and statistics are on your side.  

As situations arise things can and should adjusted if the answer to the question, “What’s the money for?” changes. But investors must avoid the natural tendency to “do something” when the news noise gets loud. Those who get caught up in trying to time the market or adjust based on changing perceptions will wind up driving their portfolios into poor overall returns. 

For a refresher, please read the “What to Do Now” section found at the bottom of this post from December 20th, 2018. Do you remember the markets back then? Oh hell, go read the whole thing again, it’s one of our toprated blogs of the last 12 months.  

Perception or Reality?

To conclude, I have a few thoughts based on the slides below. (Data is as of the end of April 2019.) I’ll keep the commentary to a minimum…just look and ask, “What has changed—perception or reality?” 

Investor Perception and Index at Inflection Points

 

Investor Perception and Valuation Measures

Investor Perception and Annual Returns and Declines 5.14.19

 

The last slide is the “shit happens” slide. Okay, fine…I do have some comments, I can’t help myself.  

Every 

Single  

Year. 

Something 

Shitty 

Happens. 

Just look at the red dots and the section of the slide that reads, “Despite average intra-year drops of 13.9%, annual returns are positive 29 of 39 years.”  Those are good odds, especially when you consider that casinos make huge profits off a 51% advantage. 

MONCON Recession Watch

MONCON_Recession_5

We are still at MONCON 5 for recession watch. If that sounds like a broken record, good.  It should. If you were trying to adjust your portfolio over the past 6-8 months based on noise and changing perceptions, you probably got hurt in the market.  For those of you ignoring it (like the MONCON model does), you have stayed in the market and have probably made money despite last December and last week.    

Keep looking forward.

Dave

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

About the Author
David B. Armstrong, CFA

David B. Armstrong, CFA

David B. Armstrong, CFA, is a President and Co-Founder of Monument Wealth Management. Along with his role as the firm’s chief investment strategist and portfolio manager, Armstrong is viewed as an industry leader in several areas including innovative practice management, discretionary asset management, digital marketing and social media. Dave is the writer of Monument Wealth Management's weekly "Off the Wall" Financial Blog and Market Commentary, and is frequently sought after by journalists and event coordinators. Visit his full biography here.

Share this post!