Staying the Course

As a follow-up to our blog titled “Market Peaks”, we cannot emphasize enough the implicit assumption that stocks can provide very attractive returns over the long term but to achieve those returns, investors must be committed to owning stocks, and have the stomach to hold on to their positions during periods of market weakness.

Through experience, I have come to appreciate that individuals have an intellectual understanding of risk and oftentimes, can convince themselves that they will not become unnerved when the market falls.  Yet, during the midst of the storm, emotions may weaken one’s resolve and lead investors to sell stocks at inopportune times.  In doing so, investors are very likely reducing the odds that they will achieve the long term returns offered by owning equities.

Sigma recommends that investors take a serious look at their long term goals and structure a portfolio that is designed to meet those objectives.  As part of the planning process, the portfolio should be expected to experience extraordinary gains and losses and still have a reasonable chance of success.

If the market was predictable, which it is not, one might naively try to “buy low and sell high” and simply side-step these periods of market weakness.  Unfortunately, it is nearly impossible to consistently time the market and a misstep may lead to disastrous results over the longer term.

As a consequence, we strongly recommend that investors are intellectually and emotionally honest with themselves regarding their risk tolerance and “stay the course”.  History has proven that this is a winning strategy.

All comments and suggestions are welcome.

Christopher Kress, CFA