Beyond The Headlines
In and Out of the Market
The stock market trends up over the long run. It’s far from a straight line. You’ll see many ups and downs. The shorter you’ve been investing, the more enthused you get amid a bull market, and the easier you’ll give in to the fear of missing out. The longer you invest, the more downturns you’ll see and the more patient you become. It’s vital not to scare yourself out of the market and rather see investing as a lifelong pursuit. Oscillating between 100% invested and 0% invested is not the path we take. We believe there is a happy middle ground, slow, steady, calm, and collected. Let me explain.
I was listening to William Green’s interview with Jason Zweig. Mr. Green (Author of Richer, Wiser, Happier) interviewed many of the investing legends we know and has a gift for introducing them to us from a different, more intimate perspective. We get to see them as humans, people like us, with emotions, fears, and worries. Mr. Zweig writes for the Wall Street Journal. I was introduced to his writing through his commentary to Benjamin Graham’s Intelligent Investor.
Graham, considered the father of value investing, had significant investment success before the Great Depression in the 1920s. He experienced massive losses in the crash that followed. The entire Dow Jones index dropped over 90% in those few challenging years. Mr. Graham refined his investment philosophy, sharpened his value focus, and did very well, inspiring many that followed him, including the legendary Warren Buffett.
Mr. Zweig mentioned in the interview how Ben Graham exited the market in the 1960s and never really got back. He was worried the Great Depression would happen all over again. It was also the time when Buffett wound down his investment partnership because he found the market unattractive.
Graham had already made his money at that point and didn’t really need to participate in the market. Buffett might have closed one chapter of his investment career, but he was far from being done. He was about to start reinventing and growing Berkshire Hathaway from a textile business to the behemoth that it is now.
That’s a prime example of a student and a master with two different decisions at the same point in time facing the same market realities.
The answer for each investor is very personal and may change over time. Some can feel comfortable being 100% invested at all times and truly embrace the volatility that comes with it. Others would rather have less invested. That decision has all to do with a preference and tolerance for market gyrations, but NOT a short-term response to them.
The challenge here lies in human nature, which is at odds with investment success. We follow Buffett’s motto: “Be fearful when others are greedy and greedy when others are fearful.” If you really take this idea to heart, you will probably be more invested when fear dominates the markets and less invested when greed overtakes investors.
The range here is not 0% to 100%; it may be 80% in stock to 100% in stocks if our preference is to be close to fully invested. If someone prefers a 50:50 split, they may also choose to be 10% lower or higher, depending on the availability of attractive ideas.
The slow and steady mindset matters here, and we’d rather avoid dramatic shifts. In March 2020, I took a lot of calls, not just from my partners, clients, and family, but also from fellow investors. Among that last group, I listened to some very seasoned investors who chose to exit the market completely right at the market low. They sold all because they couldn’t take the uncertainty and didn’t want to endure what may come. It was a dramatic shift from 100% to 0%. They later shared their regrets as the market recovered and headed higher.
In mid-2021, when the markets were flying high. I also took many calls, and I listened. I heard another set of bright seasoned investors that believed that stocks were “too boring” for these “exciting times”, and it’s now the “alternative assets” they are chasing. They also added the US dollar is not thrilling enough. They moved to leveraged, illiquid, non-US, including crypto, and more. That’s another dramatic move when greed rather than reason guided them.
Our exposure to any of those “assets” was zero. We didn’t hesitate for a second. We knew that we don’t own would matter soon enough, and it did. As a bonus, the dollar actually fared very well against what some expected.
After last year’s market volatility and correction, I’m hearing how US treasuries are the place to be. That’s the 100% to 0% shift from one extreme to the other. The fear took the lead again.
It won’t surprise you, my dear reader, that we find a middle ground between all those extremes. We prefer to be invested over the long run. We never go 100% to 0% and back. We do trim when greed dominates the market; we go on a buying spree when fear takes over.
We see investing as a lifelong pursuit, for many of our clients, it’s a multi-generational pursuit. As the world around us goes through a rollercoaster of emotions, as investors bounce from greed to fear and back, the sentiment goes from hot to cold; we keep a steady course.
The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.