As we now enter the second half of 2014, the market’s upward trajectory continues unabated with few, if any, meaningful pullbacks. The upside performance is stunning to say the least. What’s even more striking is the number of investors, professional as well as amateurs, who are underinvested and still sitting on the sidelines with large amounts of cash waiting for a significant pullback.
The concerns for their lack of commitment to the equity markets covers a myriad of reasons. Some feel that the economy is not doing well enough to justify the loftiness in prices or that the Federal Reserve is playing games or we are headed for another bubble. All are fair criticisms and concerns to be considered, yet not viewing opportunities to participate in the market at any level might not be in their best interest.
The scenario could be that the market may go to 2200 on the S&P 500. Would that be too high and therefore you should stay out of the market? Conversely, how about if the market declines 10-20%? Would an investor buy in if the S&P 500 then declines to 1600 or 1700? My experience says that they will not commit capital because they are nervous that the market could decline 30 or 40 or 50%. I believe their problem isn’t deciding when to invest in the market, but rather not having a predetermined strategy to match risk and reward. The rest of this discussion shall be to explore two investment philosophies to help you become a better investor in the short, intermediate and long-term.
Tom is the Founder of TRG and has been the President and Chief Investment Officer since 2008.