Three Things That Matter
As the news on Alcoa was announced last night after the market closed, I felt as though I was watching the movie ‘Rudy’. The scene where Rudy go to play at the end of the game and he makes a tackle, which had no baring on the win for Notre Dame, but they carried him off the field chanting his name. Alcoa! Alcoa! Alcoa!
I don’t know when investing became a sporting event, but it has taken on a new life the last six months. The momentum is building and the euphoria could lead to a run higher similar to the decline last September. When momentum builds, logic is irrelevant. I heard one comment last night from an analyst which put it all in perspective for me, “I don’t like the numbers, I strongly believe we are overpriced and I don’t want to be an investor now. But, you can’t fight the tape and I’m a buyer.”
Damn the torpedo’s full speed ahead! I have seen periods like this before and I am sure I will see them again. Yes, they all come to an end and it generally isn’t pretty, but the ride higher is something to watch. My email box is full with one similar question - should I put more money into this market? If your attraction to investing now is greed or feeling of missing something, take a vacation. If you are looking at the market relative to a specific strategy — go for it! The difference is having a specific strategy focused on what you are trying to accomplish. This also defines how much risk you are willing to accept and protecting against the downside risk.
The market is feeding on itself. There are no real fundamentals. The analyst are frustrated and attempting to make sense of non-sense. Regardless, the market is heading higher. I will go back to my thesis on this for the last six months, liquidity is driving. Money is searching for a way to participate in the growth and thus, being put to work in the market. Nothing wrong with that as long you understand the risk you are taking and have a plan of action for participating and exiting.
I want to share with you three things I practice in managing my money. First and foremost, I invest based on achieving a stated objective. In other words I know what I want before I put the first dollar to work. This is priority one for me.
Second, I invest looking forward and not in the rear-view mirror. Past performance, historical data, etc. aren’t going to tell me anything about what is going to happen in the future. The time to study that data is when you are developing a strategy or discipline for investing. No matter how much the recent trends look like the 70’s, it not the 70’s. This is now, how I invest is based on what I know now, and what I perceive the risk is relative to the strategy I want to deploy. Invest looking forward based on a disciplined strategy.
Third, I take a tactical approach to my portfolio. I am willing to increase my equity exposure when the risk is low, decrease my equity exposure when the risk is high. Long or short my focus is to manage the risk of my money relative to the market today! I appreciate all the studies, theories and analytic about asset allocation, diversification and long-term investing. However, I appreciate more the protection of my principle. Will Rogers said it best, “I am more concerned about the return of my principle, than the return on my principle.” Money management is risk management. Risk management builds wealth by keeping it.
These three principles keep me out of trouble, keep me focused and most importantly keep my money in my account. I am not always right, in fact, if I am right 60% of the time, I make plenty of money to achiever point number one - MY GOAL.
Today promises to be full of emotions and opinions, the only one that matters is yours. Take what the market gives you, but remain focused on your strategy for achieving your goals.
Have a great day investing.
