RUNNING WITH THE BULLS CAN HURT!
A friend of mine went to Pamplona last year for the running of the bulls. For the record, I don’t condone bull fighting or treating animals badly, and that isn’t the point of this story. The point is that while my friend made it through unscathed, several other participants didn’t. A few were gored, and a couple got trampled. The most dangerous part of the run seems to be at the end, when the bulls are about to enter the arena and the pathway narrows down into a funnel. Over the years, many people have been injured, and some have died as they got squished by the crowd.
Why would anyone do this? Excitement? Bragging rights? Because everyone else is doing it? FOMO (Fear Of Missing Out)?
We see a similar situation with people who remained fully invested in the equity markets as the current bull market came to an end.
Let’s look at each of the below in relation to investing.
Excitement
I mean, call us crazy, but we don’t think you should attempt to satisfy your desire for excitement with your investment portfolio! Maybe take up sky-diving or rock climbing or, depending on your level of appetite for excitement, eating at a different restaurant, but please make your investment portfolio boring, at least for the most part. If you want a bit of excitement and can afford to lose it if things go awry, invest 5 – 10% of your portfolio in exciting, hot topic ideas and put the rest into a steady Eddie portfolio.
Think of it like investing the bulk of your money in a portfolio that would resemble the young man you want your daughter (or son) to date, and a small portion in something that would resemble the young rebel you wanted to date or be when you were a teenager.
Bragging Rights
Just picture it, you’re at a cocktail party (does anyone even go to these anymore?) and you overhear, “I invested in Amazon, Apple, Google, Facebook, (insert next big name), when it was just two people in a garage, dorm room, (insert other small space).” You automatically feel envious and wish it were you talking.
The odds of investing in the next big thing are pretty slim. Just ask any serious venture capitalist who knows that the majority of her picks will fail, and she just hopes for one big
winner to offset the losers. Again, maybe this would be a fun thing to do with a small portion of your investment portfolio, but not the bulk of it.
Go run a marathon or have one of your children do something amazing about which you can brag at your next party instead!
Because Everyone Else is Doing It!
Really? At this stage of life? I mean, maybe when we were teenagers or in our early 20s, or even, stretching it, in our thirties, but hopefully the days are past when we need to secure our social standing by doing what everyone else is doing. And you know, our mothers were mostly right when they used to tell us, “If everyone else jumped off a cliff, would you???!”
Running with the pack, or momentum investing, might make sense early in a bull market cycle or with a small portion of your portfolio, but risking your financial future just because a lot of other people believe that this time will be different doesn’t make a lot of sense to us. We know that evolution has set us up to want to run with the pack so we feel safe, but if we’re part of a bison herd being corralled towards a cliff by confused or evil cowboys, it might be wiser to cut left or right now.
FOMO
A teenager explained this acronym – fear of missing out – to me, and I kind of like it! This drives a lot of people’s decision making, albeit on a subconscious level, but I argue that employing it while investing could prove to be a recipe for disaster.
Many investors want to remain fully invested because they don’t want to miss out on squeezing the last drop of gains out of a bull market. They don’t want to be the one who says, “I got out early and missed x% of the rise.” Our view is that, usually, greed kills. As we’ve said here and elsewhere, we believe it is impossible to predict the exact turning points in markets, and clinging to hope or a self-delusional belief that we are smarter than all other investors is very dangerous to our clients’ financialwell-being.
What, Then, To Do?
While we can’t give direct advice without getting to know you personally, we do believe it may be time to look at your portfolio asset allocation and determine where you stand on the risk/reward spectrum. After all, you don’t want to be the one to get gored or trampled when the herd switches direction, one way or another.
If you’d like to discuss your specific situation, connect with us here to set up an introductory call. If you’d like to meet us and hear more about investment options that may protect and grow your portfolio through all market conditions, attend one of our events.
DISCLAIMER: Northern Lights Capital is a tradename of Aligned Capital Partners Inc. (ACPI). Arpad Komjathy is an agent of ACPI and he is registered to advise clients resident in the provinces of Ontario and British Columbia.
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