In case you think individual investors suffer the emotional roller coaster of investing more than professional managers, think again. The same “thrill of victory and agony of defeat” forces are at work with everyone.
We believe active market timing is a tough and losing game. If we start day-trading performance will suffer. The Style Index portfolios program is designed to be almost always invested, unless there is an unusually difficult market environment. This is an unusually difficult environment.
We moved our Style Index clients to 100% cash on September 8. That doesn’t mean the stress stops there as being left behind in a rising market is one of the biggest mistakes retail investors make.
On Monday the 13th, while the rest of America celebrated a record breaking 936 point advance, we stressfully stared at quotes wondering if we should get invested. We stood with our conviction and stayed in cash. Overnight futures were up more that night (translation….another sleepless night!). The next day the market opened three hundred points higher. It didn’t help that my wife wondered why I hadn’t started buying yet!
That was the high and the market plunged back down to its lows shortly thereafter. Clients appreciated remaining in cash and they likely figured we had it figured out all along. Fortunately they didn’t see our nail biting as the market advanced!
We’ve handled trading differently with the Tactical Allocation program. Instead of moving to all cash, we’ve temporarily been running a long/short program. We are long some of the outperforming sectors, such as regional banks and health, while maintaining an equivalent position in a short S&P 500 ETF.
Eventually the market will become less erratic and we’ll return to investing for growth, but for now safety is prudent. Still, that doesn’t mean it’s easy….