chief foundations

Foundational Thinking From The Chief Analyst

the lost opportunity

It’s as inevitable as death and taxes. There will come a time when the economy is uncertain, the market has become volatile. You will ask your financial advisor the question, “Do you think I should lighten up on equities just for a while, and increase my holdings in cash or fixed income investments?” The answer as surely as the sun rises in the east will be “No!”. They will predictably give you three seemingly good reasons:

No one can predict the market.
In the long-run, buying and holding stocks is the best practice and we are all in this thing for the long run. We look over the valley.
If you get out, you will most likely miss the inevitable upswing in the market which often occurs over a narrow ten-day period.

They may throw in at no additional charge, the fact that even Warren Buffet doesn’t try to time the market. These facts are all sort of true. If you are a thirty-year-old investor, they may provide the best option for building value. If you are 50,60, or 70 years old, the advice comes at a price.

Observers of the market like Peter Lynch, the Guru from Fidelity, know that a bear market occurs on average every six to eight years. The market typically declines 30% or more during this period. During this period, many investors go through periods of great distress as they stand by helplessly and watch their hard-earned assets evaporate in their monthly statements. Often their financial dreams and expectations evaporate also. Yes, markets eventually recover but the trauma persists. Life goals may no longer be attainable. Retirement may have to be postponed. Savings for life events like weddings or college may be inadequate. If the investor panics and sells at the bottom, they may miss the upswing resulting in permanent damage to their financial plans.

With better information, there is a better strategy by recognizing the dynamics of Greed and Fear in the markets.

The dynamics of greed and fear

Global stock markets represent the activities of billions of employees selling trillions of dollars of goods and services to billions of consumers and businesses yielding trillions of dollars of cashflow. With all of the financial analysis on these flows, today and in the future, the valuation of these markets represents a contention or battle between greed and fear.

The greed involves the hope and expectation that an even greedier person will be willing to pay more to participate in those flows and the fear is that few people will be willing to pay as much as you did for a piece of the action and the price will go down.

TempusVendere does not follow individual stocks. We do not provide specific advice or strategies for portfolios. We do deliver technical insights on the implications of economic and market factors on the state of the market in terms of the battle between Greed and Fear. This information addresses:

What is the state of markets in terms of a relatively safe time to buy and hold equities in general.
When does it appear the balance between Greed and Fear is shifting and the risks for buying and holding equities appears to be increasing.
When does it appear that the relative risk for buying and holding equities is diminishing, Greed is gaining strength over Fear, and opportunities for equities may be improving.