It’s not about action or inaction, it’s about why.
If you looked on Forbes.com this morning, you might have noticed something interesting; or rather, you may have found it interesting that something wasn’t there. You may have seen the top article about exciting success with a drug that slows cancer, or an article listing passengers’ biggest complaints about air travel. You would have had to dig a bit further to read about Greece and China. There was nothing on the top news page about Greece’s debt crisis, nothing about China’s stock market. There were no article titles or captions that included any reference to the “stock market”. For the past few weeks, you may have thought the world’s financial health was on the brink of destruction based on the number of stories on that appeared as top news articles.
If you are a client or you follow our blog, you know that we are anything but blind subscribers to a “buy and hold” investment mentality. We do not believe the answer to every market event is “just ride it out.” However, over the past several weeks, we essentially stayed the course and just let the noise in the news pass on through. It may seem like a contradiction at first glance, the difference is in the “why.”
The reason why we did not have a specific portfolio change during the past several weeks related to the financial events overseas is simple. The data showing what was actually happening in the financial markets did not warrant a change based on our pre-determined investment policy. Therefore the portfolios we manage remained unchanged based on the facts. This should not be confused with the staunch followers of the buy and hold mentality. They may have stayed the course as well, making no changes to their portfolios. However, their decision would have been based on their belief that it is best to ride it out, regardless of whether or not their portfolio is taking a huge hit and hoping it comes back up soon.
Often, we see investors that categorize themselves as believers in the buy and hold approach, but emotions get the best of them and they make wholesale sell decisions during periods of news noise that has them uneasy. For those that did that during this past news cycle, they could have been missing out on the biggest one-week rally in the US Stock market this year.
It’s not the selling part that is the issue, or even holding fast during a noisy news cycle. It comes down to why an investor did either of those things; was it fear of what might happen, the blind hope that the market will recover soon enough if something does, or was it based on a pre-thought out strategy utilizing unbiased data? We will continue to go with the latter.