Investment Policy | Moneta

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While watching the news recently, and listening to the so called ‘experts,’ I heard the following statement, “Now is a great time to get back into the market.”  This made me stop and reflect on the last three years and how—no matter what the ‘talking heads’ may say—market timing does not work.  In particular I thought about the following quote from Winning the Loser’s Game by Charles Ellis:

“Drops in the market are eminently predictable – not in their timing, but in their magnitude and suddenness.  And it is in these periods of anxiety – when the market has been most severely negative – that clients and managers predictably engage in ad hoc “reappraisals” of long-term investment judgment, which allows short-term fears to overwhelm the calm rationality of long-term investment policy.”

I know you have heard that quote from Moneta Group many times—and I have, too. But as I was listening to the news, it really struck me how important remaining disciplined to an investment policy is during both good and bad times in the market.  I thought about how, in the midst of the most recent economic downturn, we continued to advocate that clients buy into a falling market and rebalance.  This advice was not easy to follow, because not only did it run contrary to most news reports, it also seemed counterintuitive.  However, I am pleased to say that, by and large, our clients understood the concepts and stuck to their game plans.

Now, fast forward through 2009 and 2010. The S&P 500 is up over 86 percent (12/31/10) since March 9, 2009, and those who stuck with a disciplined approach to investing have seen their portfolios benefit from a significant rebound.  So much so, that for many clients, we have continued our rebalancing strategy, exiting equities and investing in fixed income several times over the last 24 months.

As I continued to reflect on the statement I heard, I became disheartened.  While the market has rallied 86 percent (12/31/10) since its low, the ‘experts’ are only now telling people that “now is a good time to get back in”?  Obviously, investors who listened to these experts and waited until now to get back into the market have already missed the significant increases enjoyed by those who understand and believe, like we at Moneta do, that the long-term investment strategy is the best overall strategy, one that you have to stick with even in down markets. It clearly reinforces the point that market timing does not work and is not a prudent investment strategy.  It is absolutely essential that an investor find a policy suited to their goals and risk profilethen they must have the commitment and confidence to stick to it.

No one can predict what the future holds, and past performance is no indication of future results. But one thing you probably can predict is that markets will continue to fluctuate and the importance of removing emotions from the equation and remaining disciplined to an investment policy will be a key to achieving your financial goals.

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John Steffens, CFP®, MBA

John is the professional consultant for Jim Blair.