27 July, 2022 Total Client Experience

When Will It Be Over? And Other Portfolio Thoughts

WHEN WILL IT BE OVER? And Other Portfolio Thoughts

Clients and friends

Everyone wants a portfolio silver bullet, that magical strategy or investment that will not drop during volatile markets and earn a healthy profit.

Many are glued to the Internet, TV, or podcasts listening to various pundits and experts who make predictions about what they feel will happen and the best investments to have in a portfolio now.

Jason Zweig’s "The Devils Financial Dictionary" talks about Mesopotamian priests, known as baru, who would study “the contours of a liver or lung taken from a freshly sacrificed sheep” to predict the future. The investor's world is filled with similar sorcery.

A report from CXO Advisory Group (1) analyzed 6,582 public market calls made by 68 pundits from 2005 through 2012 and found that their average accuracy was 47%. You could have flipped a coin and done better.

I believe that many, if not most, who listen to “experts” understand that the chances of them being right are not that high. Yet they listen because they want hope, just like buying a lottery ticket with an extremely low chance of winning.

Spending a dollar on a lottery ticket is one thing, but changing your portfolio based on predictions that will likely be wrong is a recipe for financial suicide. In his book "A Wealth of Common Sense", Ben Carlson states the most crucial determinant of long-term portfolio performance.

“Over decade-long time horizons, your investment performance will mainly be derived from how you handle corrections, bear markets, and market crashes. During every single bear market there will be times when you wonder if the losses will ever stop. You will always wonder how much lower the market can go. The economic news will be terrible. Other investors around you will be depressed. Pessimism becomes pervasive.”

We must never forget that a bull market has ALWAYS followed every market correction with new high points. Those with a short-term versus a long-term perspective who panic sell will usually miss out on much of the market upswing that follows a correction.

The Worst S&P

I don’t know where we are in this market correction, but I DO KNOW that things will change quickly and unexpectedly (Do You Remember March 23, 2020?). A new bull market may start tomorrow or in six months or longer. But looking at the big picture, market valuations are much more attractive than they were six months ago. According to Bloomberg, the Price-to-earnings ratios [a key factor in determining how attractive the markets are for investing] are now close to, or lower than, their long-term averages.

PE Ratios

Those with long-term investment capital on the sidelines may be wise to start allocating this cash back into the markets. Those a bit more conservative could do this gradually by taking 1/12 of their cash and investing it in equal amounts each month.

Remember, there are no silver bullets, and sheep livers are poor predictors of the future.


Have a fantastic rest of the summer.