For the past two days the Forest Service has been conducting prescribed burns one or two valleys away and they lost control as it broke the fire line that was constructed. We were on stand-by but fortunately we were not called out and I got to watch Niagara win the NCAA play in game on ESPN and Marc Faber on CNBC Asia.
There were several obvious risk factor that made burning yesterday a bad idea. The temperature was in the 70's, the humidity was low and there was a very slight wind. Everyone associated with wildland firefighting knows the basics of fire behavior and this was easy to see coming.
You can probably see where I am headed with this. There are a slew of things that normally pose threats to the stock market; things like higher interest rates, bad economic data, narrow credit spreads, unusually long time periods with no declines and a bunch more.
I have been writing about a potential correction (by the way I don't consider what has happened so far large enough to be a correction) and the reasons I have been citing are very routine relative to market history. The yen has been a source for problems in the past, some sort of problem with financial institutions has caused trouble before, so has an inverted yield curve or anything else you want to blame the current dip on. I have made a few references in the last few years to having seen this movie before.
I know some folks are feeling some anguish here so you can either take this to heart for the future (because this will happen over and over as a part of normal stock market volatility), benefit from this notion now or just think I am a buffoon and not care in the least.
I will say that my personal dissection of threats to the market over the last couple of years leaves me less prone to emotion than if I only focused on the greatest story never told. One perception I have about my job is that people who hire a money manager do not want that person to get emotional about the market. Assume for a moment that is true, I think you as your own money manager would want the same thing. Do I have that right?
And no that is not me in the picture, pretty cool though.
8 comments:
Roger, perhaps you've already covered this in one of your posts...but one thing with which I have difficulty is seeing the problems pretty readily but NOT being able to weight them accordingly. My bias is to overweight the problem, rather than underweight. I'd be grateful if you or your commenters would share your mental model for weighing the potential market harm (as opposed to normal backdrop of market worry). I suppose that the simple answer is that you wait for the market to show that it is worried.TIA. (I'll pipe down today!)
i have to head to Phoenix this AM, I will try to post an answer later but things pertaining to liquidity disruptions and supply and demand balances tend to be the biggest related problems. I suppose terror issues are worse but they are external shocks and so far have been short lived.
I would not walk out on that ledge
for $10,000.
Jay Charles
Roger with the action of the last few weeks and what looks like some more selling coming would you still use the lazy portfolio?
iShares DJ Dividend Select Index Fund (DVY) 25%
Rydex S&P Small Cap 600 Pure Value ETF (RZV) 15%
WisdomTree DIEFA High Yielding Equity ETF (DTH) 25%
BLDRS Emerging Market 50 ADR ETF (ADRE) 5%
DB Gold ETF (DGL) 5%
iShares TIP Fund (TIP) 20%
Advent Claymore Convertible Bond Fund (AVK) 5%
Love your Blog!
Roger,
You are absolutely correct about the advisor's role. Behavioral finance is full of examples of how emotional issues sidetrack investors. One key benefit an advisor should offer is to remove those emotions from investment decisions.
REW
Jay, funny stuff!
Ibby, to be clear I put out that version of a lazy portfolio with the disclaimer that I was not doing that for any client. I will say that whether that version of a lazy portfolio is any good or not there is no way to decide it works or not after such a short time period. I believe in the effect each holding captures but who can say if it is weighted properly or not. The time period is too short to think it is any better or any worse.
Thank you Russ
I am a money manager. The hardest portfolio I manage is my own. What can I say I am an emotional guy.
What's easier spending: OPM, or your own money? More than one money mrg prefers to give his account to another. My geuss, anyway.
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