Wednesday, September 7, 2011

Fear the Ostrich

Yesterday, we received an email that basically said that market emotions were running wild, and that those who just held during this period would be rewarded. It sounded pretty 'Buy and Hold' to me, and one of our wealth managers suggested we write a refutation.

Here were my key points to rebut the idea that inaction is the best approach in all market environments:
  • Most Advisors ignore the business cycle that clearly exists and that has an effect on asset prices.
  • Most Advisors think technical analysis is akin to voodoo.
  • Most Advisors are willing to invest your money but not willing to invest their time or money on an investment team.
  • Most Advisors realize that buy and hold is a much better business strategy than investing strategy.
  • Most Advisors would rather hope that markets get their clients to retirement than actually work on a strategy to get them there.
  • Most Advisors are like ostriches, putting their heads in the sand and betting that 'Buy and Hold' will continue to work.
Luckily, we at Pinnacle aren’t most advisors.

If you're currently working with a 'Buy and Hold' advisor, then you’d better hope we're wrong in our assessment that there's a high probability we're in a persistent bear market. In a bull market, a rising tide lifts all boats, but as legendary investor Warren Buffet once said, “It’s only when the tide goes out that you learn who was swimming naked.”

Fear the ostrich.