Historical patterns exist in all markets – all markets! Many market Chartists believe they act without the assistance of fundamental input in their decisions, though in reality, a technical chart has already fully baked-in all fundamental activities, including the interpersonal emotional relationship between all people.
Charts reflect everything that has already occurred and is presently occurring within a macro or micro economic mindset (emotion) and additionally recounts the specific economic successes or challenges that face a particular entity within a market.
We are now at a six-year cyclical major market peak, which in the prior two cycles led to dramatic market corrections and massive wealth redistribution (2002, 2008). Individual investors need to carefully watch the signs as this most recent market-top present itself as a precursor to the next major market low.
Many investors have left this concern for their economic welfare in the hands of their financial representatives. They believe that their advisors are carefully and continually monitoring and analyzing all global currency, debt, equity and geo-political activities. After all, this is the very reason clients pay fees. Unfortunately, history clearly illustrates that this does not occur. Even the best financial representatives tend to get blindsided (with their clients money) by these major corrections.
What is actually occurring is an emotional pattern repeating itself because financial advisors want the best for their clients and themselves. The fundamental disconnect is that their belief in the antiquated ‘Buy and Hold’ model give both the advisor and the client the best opportunity to achieve their dreams and goals.
This is simply incorrect.
The reason that this strategy only truly works for a Berkshire Hathaway as an example, is that their funds have perfected a massive diversification that is necessary to weather down markets while having enough dry powder on hand to take full advantage of ‘blood in the streets’ re-pricing. They then reinvest and further diversify their outsized gains on the subsequent upswing. These super funds are likely working with time frames that are modeled in 50-year segments. This is quite possibly the most perfect approach to follow… if you’re not an individual.
Individual investors regardless of size cannot emulate a true ‘Buy and Hold’ strategy because other elements that come into play negate their ability to clearly allow a generational strategy to fulfill itself. They have kids going off to college, homes to buy, businesses that need to be started, retirement funding, and new areas of interest they desire to explore. Their out-of-market capital demands require non-correlating alternative asset allocations to fully meet their needs.
Why do emotional patterns cause portfolio failure?
Financial advisors track every intricacy of every market move, which often makes them unable to see the bigger picture (pattern) that a major correctional shift is clearly developing. Their wish is for the market to maintain a continual up-trend based on their belief that the market should return what their clients and they themselves personally lost in time and money, during the prior correction.
Ignoring the big picture and holding out for the receipt of profits previously missed is an emotional pattern bent on self-destruction. Investors will be punished again for doing exactly what they did six-years previous – not exiting the market when all signs pointed to another major correction.
With this framework in mind, we can see how equity investors experience emotional and monetary rough treatment for overstaying their welcome in a market, which can be demoralizing. They forfeit both the profits at a market peak and those profits ability to fulfill personal aspirations.
With the market at all-time highs, its best to clearly hear John D. Rockefeller’s sentiments about his personal success, when he said (paraphrased), “ I’m surprised I became so wealthy, because I always took my profits too early.”