Like Them or Not, These Are the Facts

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Slap In The Face Award

Transcript:

Here’s a slap for both the average guy and the institutions. This is an equal opportunity smack this week.

One of the more entertaining aspects of my job is when people find out what I do. They can’t wait to tell me about their investment ideas.

I call these chance encounters the “don’t confuse me with the facts” meetings.

In the past, I used to try to help them out by sharing some facts of life and long-term truths that I’ve learned in my 34 years in the markets.

But I’ve also learned that no one wants facts or truths.

They make investors uncomfortable.

This “no facts, please” behavior goes by many names… information avoidance, the “ostrich effect” and intentional ignorance. And it is rampant in both individual and institutional investors.

Here’s how bad it has gotten…

A recent survey reported that wealthy individuals will have to double the 7% long-term return of the market to meet their expectations. Yup, they have to earn about 14% to realize their inflated returns are based on assumptions, not facts.

Fourteen percent a year is highly unlikely – especially for the average investor who returns only a little more than 2% per year. But no one wants to hear it.

Institutional investors – specifically venture capitalists – report that they expect to earn 20% per year going forward… despite the fact that they’ve lagged the market for most of the 2000s.

In almost all cases, only illegal insider information will net that kind of return. No one wants to hear that either.


But this “no facts, please” behavior costs us money when we hold our losers too long.

No one wants to feel the pain of losing or admitting that they were wrong. So we hold our losers. And hold them… and hold them…

This record-high market is driving two extremes of the “don’t confuse me with the facts” behavior… and both could be catastrophic.

It’s either the overconfident investor who doesn’t want to hear about the downside market realities that don’t agree with their views or their holdings…

Or it’s the bears who refuse to accept that the market – no matter how high it is now – will eventually go higher. They miss everything.

The only real time-proven truths of the market are…

  • We will always have sell-offs.
  • The market will always recover to new highs.
  • You cannot time the market.
  • And fundamentals – not your ideas or feelings – drive it.

Like them or not, those are the facts.

Good investing,

Steve

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