Take A Step Back

A reader left this troubled comment;

My portfolio is taking a beating. I am about to say good bye to the equity markets for good.
So obviously a lot of emotion in that statement. The other day on the Consuelo Mack show a journalist had pictures of a human brain that "prove" humans are not wired for investing. His take is that emotions impede succeed.

The S&P 500 topped out at 1553.08 (on a closing basis) on July 19. The ride down to 1451 yesterday (not the low in the dip) works out to 6.5% and at 1451 the S&P is up 2.3% plus another 85 beeps for two dividends.

As explored last week some folks are down on the year against that backdrop. While my comments earlier on this were wrong I would ask how much this person is down, why he thinks that amount is such that he is considering giving up on stocks for good. I can't really relate very well to such an emotional response. While I am sorry he feels such anguish there is nothing that has happened this year that has not happened one way or another many times in the past.

The type of step back I am referring to in the title of the post is that constructing and managing does not have to be that complex. I would venture to say that a lot of people that are trailing the market by a significant amount this year are making it more complicated than it needs to be.

All of the rules of thumb I mention that I use in trying to manage money are all very simple, chapter one things. When the curve inverts underweight financials and then just wait until it normalizes. Late in the cycle underweight discretionary. Don't make big bets. These are things I have been writing about for three years now (three year anniversary on September 29) and I think people with some investing experience will recognize them as being incredibly elementary.

These are things that anyone can do.

What may not be so simple is managing emotion. I've tried to address this many times in the past, perhaps to no avail. First I would say that if you are going to manage your own portfolio you need to spend some f&*#ing money on some tools that will teach you how the stock market works. I don't know how many times I have said to buy a Stock Trader's Almanac (no compensation for saying so).

There is nothing that the market can do that it has not done before. Market behaviors repeat over and over. Even after cutting in half a few years ago the S&P 500 came back. The market came back from the crash, the next crash, stagflation, the Iraq war, the next Iraq war, the collapse of the Thai baht, the Bay of Pigs, a few other wars, the Mexican peso, Orange County and so on.

No matter what your fears and anxieties the market will do the same thing in the future. It will go up most of the time and every so often it will go down. Your emotion cannot change that. Ups and downs are metaphysical certitude so what is the point of being emotional? There is no point, that is the point.

To the extent you can add value when the market does go down, all the better.

To get to the point of no emotion took time and study. This is not to say that every decision I make is correct, I do get things wrong, but emotions do not complicate what I do.

The market is going to do what its going to do no matter what is going on in your life. Once you realize this, I mean really come to accept this, you can then move on to an easier time with managing your portfolio.