During virtually all bear markets, a point is reached that is later defined as the "maximum point of pessimism”. It is this author’s belief that this point was reached 3/9/2009. The market has rallied over 25% since then.
Two of the greatest (if not the greatest) roles a wealth manager plays for his or her client are:
- Ensuring that the client understands the risk/reward relationship of the portfolio.
- Administering to the client a “vaccine” that can protect him or her from making poor decisions at the maximum point of pessimism. Like all vaccines, it works for most--but not all--who are given the shot. In this case, the shot is ongoing investment education and candid advice as to what is most probably the best decision regarding the management of one’s wealth.
I recently came across a wonderful summation that captures not only why investors should avoid selling at bottoms, but also the great potential benefit that awaits those who continue to own the right mix of stocks, bonds, mutual funds, etc.
“The recession is going to end some day, probably sooner than later. The world economies are going to continue and re-surge their growth once again. There are significant numbers of truly great businesses that have proven themselves capable of weathering the storm. They are financially strong with great balance sheets and strong financials and the market is currently pricing them as if they are going out of business. This represents possibly one of the greatest opportunities for investors in a lifetime. As professionals, we are obligated to help our clients overcome their fears in order to reap the potentially large returns this crisis has created. Buying low and selling high is the oldest and most sacred of investing principles.”
– Chuck Carnevale, Chief Investment Officer/Co-Founder of Great Companies, Inc.
Investing lesson: Buy low, sell high!