The Big O!

After two devastating bear markets that cut 401k’s and IRA’s in half, investors are of the mindset that it is better to get a return of their principal rather than a return on their principal.  But then again, after 10 years of zero returns and a lot of heartache, can you blame them?

We know that good investing starts with a good defense.  Don’t put yourself in a hole that you cannot get out of.   This should be a basic rule and good things will usually follow.  However, if you really want to make money, then you need to have a good offense too.  You need both aspects of the game to win championships, and in investing it is no different when going for the gold.

So how do you play good offense?  One, as stated above, a good offense starts with a good defense.  Two, you have to be strategic in your approach to investing.  So what does that mean?

Having a strategy implies having a plan and taking some action to implement that plan.  Buy and hold really isn’t a plan, and it is often called “buy and hope”.  As an approach to investing, it is probably dead.  Research from the Federal Reserve has shown that the demographic shifts, such as retiring baby boomers, will have a profound effect on stock market returns over the next 30 years.  Investors are likely to avoid risky investments, such as equities, in favor of more consistent income streams.  Equity markets may not enjoy the returns they have over the past.

At ARL Advisers, LLC we believe that a well crafted plan should allocate funds to those assets with the greatest potential for appreciation and away from those assets with the greatest potential for loss.  Sounds simple enough, but in reality, most investors have a difficult time identifying that optimal opportunity.  Why is this?

Multiple studies have shown that investors tend to chase performance.  For example, they may only buy 5 star rated funds.  Or they buy high and sell low.  They don’t diversify such that opportunities are missed because their investments are too concentrated in one asset class.  And probably the biggest impediment to investor success is an approach that can be best described as too emotional and lacking in rigor.  Making money in the markets is difficult, and like any successful endeavor in life, investing is a process.

Yet most investors are not cut out for this process.  This is not because they are not smart enough or even capable, but because the process requires commitment, discipline, and passion that can only come from years of study and knowledge.  Most investors don’t have the time in their lives to dedicate to this process.

So to play good offense we need to be more strategic in our approach.  Remember, buy and hold is dead.  It is not good enough to set it and forget anymore.

At ARL Advisers, LLC we have developed many proprietary trading models in our quest to outperform, and we utilize this research driven methodology to determine those factors which lead to sustainable moves in the markets.