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Chicken Little And Taking Turns Getting The Markets Wrong

Chicken Little And Taking Turns Getting The Markets Wrong

| November 19, 2021
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“What’s the market gonna do?!? What’s the market gonna do?!?” This was part of Chicken Little’s dialogue before the final edit.

 

Morgan Stanley expects a correction in 2022, as do plenty others. On the other hand, Goldman Sachs expects the S&P 500 to hit new highs (5,100) by the end of next year, and they’re not the only ones who see big things in the short term.

 

Financial Concepts Unlimited, LLC, raised equity allocations across the board in April of 2021 and it’s paid off handsomely, but we didn’t do it because we thought equities were going to do well, as much as we thought there was a growing risk in bonds. Right now, we’re going through the process of whether or not now is the time to make some incremental adjustments again.

 

No one knows exactly what the markets will do. All of the experts make predictions, and some will be correct, but none know exactly what’s going to happen. They’re just making predictions. Oddly, considering the level of expertise and knowledge these folks have, there's never one particular consensus as to what will happen short term. The ones who get it correct this time, will probably get it wrong the next time.

 

That’s not to say that their expertise isn’t warranted. There’s knowledge in them thar hills. But there’s so many aspects of what goes into short term gyrations… cash flow, public psychology, supply chain delays, interest rates, employment rates, etc… it’s impossible to know exactly what’s going to happen. Long term is another story. The economic markets were created for growth. They are, in a sense at least, living and growing entities. There is predictability in them. At least until there isn’t.

 

So what do we do now? Same as always. Don’t try to predict the markets, don't try to time the markets, and don’t make growth your first priority. Assess what kind of risk you’re comfortable with. Not what kind of risk you need, not what kind of risk is appropriate for any one particular account… just the maximum amount of risk and volatility you’d be comfortable with while still being able to snuggle under the covers and go to sleep at night. Then create a portfolio that will squeeze every opportunity for growth out of the markets, while staying within your maximum risk level.

 

By the way… “Near term market volatility” shouldn’t matter. To you, at least. You should be investing for the long term. And if you’ve got your risk levels correct, whatever market volatility that happens shouldn’t bother you too much. Financial Concepts Unlimited pays attention to near term volatility because that’s part of our obligation. We are Fiduciaries and guardians of client assets, and we owe our clients to pay attention to everything. Having said that, while we do create a sense of what we feel near term volatility will be like, we do not try to time the markets. We create our portfolios based on the appropriate amount of risk for a particular client (given our view of near term volatility), and then we try to grab every ounce of growth we can within that risk range.

 

And that’s the point to this entire article. Don’t try to time the markets based on a prediction. Certainly not short term. Even the experts disagree. Figure out what your true risk comfort level is. Not what’s appropriate for a given account, but what’s appropriate for you personally. Then create all of your accounts based around that maximum level of personal risk, adjusting the risk up or down for the type of account you’re creating. As long as your risk level is right, you can strive for all the growth you want, without having to predict what direction the markets are going in, and you should still be able to sleep at night.

 

All Chicken Little had to do was mitigate his risk with a little protection, and he wouldn’t have had to worry about the sky.


If you have any questions or concerns, give Financial Concepts Unlimited, LLC a call or send us an email. 

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