Saturday, May 18, 2013

Investing wisdom and discipline...

"The best thing for me would be that ten percent correction" my buddy/client Ron declared to me yesterday morning. As you might imagine, that's not the typical sentiment among everyday investors. My friend clearly gets it. He understands that a healthy market, like a healthy long-distance runner, has to take that break every now and again. Or think pit stop if you prefer an auto racing metaphor.

I believe the last ten percent correction occurred the year Mario Andretti won the Indy 500. That's right, I was calling my clients on a rotary dial phone. Well, of course that's not the case (I was only 7 years old) --- and it certainly doesn't express the sentiment of the general population. There's no question many investors, particularly moms and pops, are still smarting from the 2008 bear market. And we've seen a handful of noticeable corrections since then. Just not lately.

What my unusually wise and disciplined friend is hoping for is the opportunity to rebalance---buy stocks---in a down market. You see, virtually without exception, we have been selling stocks after every client review meeting for the past several quarters. That's simply because the market's up, and if your target is 60% equities, your portfolio is over-weight stocks. Which means we sell back to your target. When (yes "when") my friend gets his wish---when your stock exposure drops to (for example) 50%---we're buying back to your target. Ron (as should you) understands that, long-term, his portfolio will be better if it takes that periodic pause, allowing him to reinforce his foundation --- replenish his portfolio's electrolytes if you will.

Bottom line: while, at the margin, sector selection matters, maintaining a diversified portfolio, and the wisdom/discipline to periodically move against the crowd are the secrets to long-term investment success.

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