Quiet In The Storm

"Only in quiet waters things mirror themselves undistorted.  Only in a quiet mind is adequate perception of the world." ~ Hans Margolius

I believe it's time for me to return from my recent focus on philosophy to some market commentary (supported by philosophy, of course).  Have you been tempted to make "un-planned" changes to your investment portfolio as a result of recent market turmoil?  I've been managing money professionally for 10 years and I'll admit this market is beginning to test my will; however, all I need is a good dose of reason and my resolve to stay "quiet in the storm" returns.  Today, I'll share a few historical references and some pieces of wisdom to give you some peace:

You've got to be in to win: 

Remember that stepping out of the asset allocation suitable for you is nothing more than a foolish version of timing the market.  Based on history, between 80% and 90% of the returns attributable to market performance comes from just 2% to 7% of the time in the market.  If you jump out of stocks when the market is in a down trend then how do you know when to get back in?  If you're out of the market on those few "big days" as it resumes its march back up, your portfolio is doomed to under-performance.  Time in the market is favorable to timing the market.

Emotions rule herd behavior: 

As the notable technical analyst, Philip J. Roth, has stated,

"Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside.  In up markets, volatility tends to gradually decline."  Prudent investors should expect significant declines when fear begins to control herd sentiment."

Patience is a virtue:

The recent Vanguard article titled, Recession and the stock market: Timing is everything, offers some sound perspective:

"Stocks have often declined significantly just before the onset of past recessions, then rebounded as the recession drew to a close.  Long-term investors who looked at the big picture and bore stock market risk during periods of economic uncertainty were ultimately rewarded for their patience."

Be still in chaos: 

I like this piece of wisdom from Indira Gandhi: 

"You must learn to be still in the midst of activity and to be vibrantly alive in repose."

And here is one more piece of wisdom to take with you before leaving this post:

"It is easier to exclude harmful passions than to rule them, and to deny them admittance than to control them after they have been admitted." ~ Seneca

While emotions are swirling and media "noise" is competing for your attention, action, as a response, will often bring negative results while "sitting still" is prudent.  Actions are best taken in times of "repose;" we do not shrink in the face of adversity; and we do not make decisions at the very moment that emotion stands before our reason...

Sitting still amidst chaos is more likely to bring success in the long term than by taking actions on our emotions in the short term...

TFPAuthor, Kent N. Thune, QPFC, is the President and founder of Atlantic Capital Investments, LLC (ACI), a 'fee-only' Registered Investment Advisory firm located in Mount Pleasant, SC.

Comments

[donna]

Even if you're sitting still, the chaos is still a heckuva show, though. ;^)

We're holding....

[The Financial Philosopher]

Yes, Donna. It certainly is nice to be "watching the storm" rather than in the midst of it...

I would interpret Indira Gandhi's "vibrantly alive in repose" in this market's context as follows:

The time to make moves with investment portfolios is when the markets are at or reaching historically high levels. As I stated at least one dozen times last year, almost any time in 2007 would have been ideal for portfolio re-structuring.

Speaking for myself and my clients, we are prepared...

[semyhr]

I recently changed my job from dealing with stocks to another financial position where I currently don't have time to follow markets. I have also not invested my money yet, however, now coming home in the evening and seeing what good prices are available on the markets, feels like buying for sure. I feel like everything is more or less fine and long term it's a very good timing to start accumulating good company stocks.