The eruption in Eygpt is a prime example that on given given day, "The investment climate can suffer an earthquake."
Almost on cue after two months of a huge stock market run up, I have had a number of clients question my current defensive stance in our portfolios with their money. Hey, don't get me wrong, it's their money and a very legitimate question. That said, having been doing this for 26 years, I understand the cycles of investing and more importantly, how what's going on in the world can heavily influence our collective grey matter!
My response to clients has been as follows:
- I believe the stock market to be overvalued.
- I believe that a stock market can remain overvalued for longer than it should.
- The longer a market that is already overvalued moves in a further overvalued condition, the greater the future cardiac arrest (2000-2002 and 2008-2009).
- The U.S. stock market has been fueled by government stimulus, not fundamentals.
I do NOT have a crystal ball.
It is like walking by a house each week that seems to have lots of people in it, having a great party. It is normal human behavior to feel like you are missing out on the fun.
- It is a great party, until the music stops and there are not enough "safety seats" for the majority of the people in the room.
- I want my clients to have a safety seat!
The single greatest role a professional financial advisor plays is assisting their clients in finding the "middle switch position." That is hard to find on their own.
A day like today was not a matter of if, but more a matter of when. That said, who knows what will happen beyond today. Just so we are clear, no one knows. I repeat, no one knows. If you think you know, or a friend tells you they think they know, well, think again. These are the facts!
What You Should Do
The best course of action remains as follows:
- Do not be an "extreme" investor. This means sitting all in cash because you believe the sky is falling. It never works.
- As important, walking into the party at 1 a.m. and getting more into stocks when they are overvalued has proven equally as costly.
- The prudent, proper, experienced, appropriate, yet often very hard, thing to do is continue to allow a professional investment advisor who operates from a contrarian investment philosophy to keep you well diversified across an ever dizzying array of investment choices.
- In baseball terms, singles and doubles win ball games over time, not home run swinging.
- In real estate terms, we are about "owning" lower, reliable, more consistent returns vs. "renting" higher, unreliable, inconsistent returns.