Noah Didn’t Yield To FOMO, Neither Should You

Markets fluctuate between periods where greed runs rampant such as today and periods of fear. Unfortunately, greed causes many investors to ignore or belittle facts and history.

Fear also prevents us from making intelligent decisions. Investors have a fear of catching the proverbial falling knife, even though a stock may already be discounted significantly.

To be successful investors, we must balance our Jekyll and Hyde personalities and silence the crowd’s din. As hard as it is to resist, we cannot fall prey to periods of grossly unwarranted market optimism, nor should we be shy to invest during periods of deep pessimism. TO repeat, avoiding our instincts, like not turning with the crowd in an elevator, is challenging to put it mildly.

How We Keep our Investment Zen

One way to find comfort in both booms and busts is to have well-thought-out investment strategies and risk limits. A good plan should encourage steady, long-term returns and employ active strategies. The plan should ensure you stay current with potential risks, technical setups, and market valuations.  These measures help keep us mindful and vigilant.

As of writing this, we are nearly fully invested in equities. Make no mistake, we are keenly aware current valuations portend poor and likely negative returns for the upcoming ten-year period. What we do not know is the path of returns for the next ten years. Will the market fall 70% tomorrow and rally back over the next nine years? Will it continue rallying to even greater valuations and tumble in a few years? The iterations are endless.

Given the current risks, we actively manage our exposure. If our shorter-term technical models indicate weakness, we reduce exposure and or add hedges. If they signal strength, we may add exposure. Of course, we always have a finger on the sell trigger.

 

The Coming Noah Effect

Hearing the crowd and sensing the palpable enthusiasm is easy. But, listening to the lessons of the math and history books is difficult. The graphs below are two examples of data and history that provide sobriety to help counter the pull of FOMO.

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