Are You Waiting for “Perfect” Investment Conditions?

It was a great day to be out on the river. The weather was beautiful–clear skies and 65 degrees with a pleasant breeze. The newer fishermen in our group didn’t realize that the pleasant weather may have been good for hiking but wasn’t very conducive to catching fish. The old salts among us knew that they would have their work cut out for them. They knew that world-famous Spruce Creek in central Pennsylvania was going to be a challenge on this day.

Contrary to what you might think, great weather and great fishing often don’t go hand in hand. There are many reasons for this. For example, bugs tend to hatch on cloudy days. Some bugs even prefer a light drizzle and bug activity tends to be what drives trout feeding behavior. In addition, trout don’t like to look up into a bright sky any more than humans do. So, trout tend to slow their feeding patterns when the sun is high in the sky.

Spruce Creek on a beautiful spring day (2017)

Spruce Creek on a beautiful spring day (2017)

By the end of the trip, everyone in our group, regardless of experience level, had caught some fish. The novices were pleased, but the old salts knew that we had only scratched the surface of the creek’s potential yield.

Investing is similar to fishing in many ways. When the economic weather conditions are good, investors willingly pay higher prices for securities and will accept lower expected returns (i.e. a more modest catch). When the economic weather conditions are bad and securities prices are low, many investors stand passively on the banks of the capital market stream waiting for better conditions to emerge. Unfortunately, “waiting it out” is often when you forego the best opportunities to haul in low-priced securities with their associated higher expected returns.

Conclusion

Portfolio rebalancing is a partial cure “waiting it out” and other types of counterproductive investor behavior. The discipline of rebalancing allows investors to fish successfully under all conditions. This leads to more reliable and less volatile long-term returns.

If you or someone close to you has concerns about what’s in their portfolio or their tackle box, I’m happy to discuss either topic with you at any time.

Key Takeaways

  • Whether fishing or investing, don’t wait for perfect conditions to make your move.
  • Whether in the river or in the markets, the rewards are higher if you strike when others are sitting out.
  • The discipline of rebalancing allows investors to fish under all conditions.
Historical performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. Investment in securities involves the risk of loss of interest and/or initial investment capital.  Nothing in this letter is intended to be or should be construed as individualized investment advice. All content is of a general nature.

About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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