July 27, 2017
Skydiving: Lessons in Risk Management
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” - Warren Buffett
The markets climb a wall of worry. What in the world does that mean?
It means that markets, and bull markets in particular, have a tendency to run much longer than the retail investor is ever willing to understand or grasp. If you short early or sell early then you have a problem. The problem is reinvesting - when? You can’t call tops and you can’t call bottoms. I have been investing money professionally since 1998 and market timing does not work.
What works you ask?
Asset allocation, patience, dollar cost averaging, time and risk management. I have said it once and I will say it again, we have to manage the portfolio to your risk parameters. We have to control what we can control (please see the attached report for all the various market metrics we research).
We live in a world of mass shootings, mega storms, turbulent politicians and general chaos. Guess what - listen through the noise and stick with the plan. I can assure you that we are investors investing right alongside you, as clients. So, are we cautious? Yes. Are we making massive allocation changes? No.
Hire managers and deploy strategies you trust and then trust your plan (while also closely watching fees). This doesn’t mean we sit idly by and frankly it doesn’t mean we don’t believe in basic fundamentals that the market is overvalued and make allocations accordingly.
- "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." - Peter Lynch
- "Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.” - Warren Buffet
Understand the course and then stay the course. Patience works in the markets and life.
“You know what they say about skydivers, right? There are old skydivers and bold skydivers, but there are no old, bold skydivers.”- Jeff Wuorio
I’ll close with this.
If you were to jump out of plane for the first time wouldn’t you want someone alongside you who has made hundreds of jumps who checked and rechecked your equipment and had a safety process that didn’t deviate?
No matter what the weather was doing, no matter what she was hearing or distracted by she just checked, rechecked and rechecked again before you dove. Walking you through the process, understanding deviation from the safety protocol and plan could be devastating.
That is who I want to skydive with, that is who I want to have my life in their hands. We feel that strongly about each and every one of you. We care, we check portfolios, and we have a plan and understand deviation at the wrong time can be devastating.
With that, I leave you this video for your viewing.
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