Adjusting Expectations can Prove Beneficial for Your Investments
By Anthony Rhodes
I’m learning to appreciate Brahms. I say this not because I don’t believe he was a talented composer, but that when listening to his music, I’ve been expecting the immediate and sustained gratification which I normally receive from my favorite composers, like Mozart, Beethoven or Bach. Upon the absence of receiving such fulfillment, his works had been generally relegated to the nether regions of my audio library. I had clustered his catalogue amongst other forgettable artists whom I deemed as not being worthy of continuous play, and only selected his compositions during the enaction of menial household chores, when my attention was more directed towards what I was doing, as opposed to what I was listening to. But recently, I’ve come to the realization that I’ve been unfairly comparing him to giants, whose powers were simply beyond his abilities. His repertoire didn’t include the sheer Devine beauty of a Mozart, or the awe-inspiring creativity of a Beethoven or a Bach, but once I decided to remove these comparisons to him, I’ve noticed that there are aspects of his art which I’ve begun to appreciate, and others, which I’ve actually come to enjoy.
Lessons as important as this are also germane to our investment expectations. While we’d all like to purchase our stocks at $15 and sell them all later at $50, the truth of the matter is that not all stocks are likely to produce such levels of growth, and upon discovery of this truth, learning to adjust our strategy and to expect more modest returns from some of them, may be a wiser tactic to employ. For this week, we’ll address this matter with greater concentration, as I communicate the importance of applying this understanding to your portfolio. Equally as important, is to attempt to prevent you from making the mistake of assuming that during a bull market, we should expand our expectations for all stocks which are held amongst our investing assets, when in fact, for certain segments of our portfolio, such conditions may actually call for us to lower them.
At a Snail's Pace
There are stocks within the market, which somehow seems impervious to excitement. These laid back, easy-going companies appear to care less about the raucous goings on of the broader market, and despite all attempts to expand their trading range, tend to snub their noses at every level of investor, as they slowly meander through the same trading pattern, over and over, year after year. Such companies may not provide you with the exhilaration which you may experience with others during a bull market, but by lowering your expectations and appreciating them for what they are, can provide you with some surprising benefits. First of all, their predictable movement patterns creates trading opportunities for those willing to accept small but consistent gains, and the relatively dependable steadiness of such patterns, can provide both a hedge against volatility, and security during down markets. Though not as interesting or stimulating as their flashier brethren might be, these boring, humdrum stocks can provide an added dimension to your capital assets. And for those who can remain disciplined enough to disregard their laid back nature, they may also prove to be an underrated, though valuable member of your stock portfolio.
As Swift as a Snake
During bull markets in which nearly all sectors are recording historic highs, it’s easy to become caught up in the excitement of the moment, and hold on to certain stocks for periods far longer than we probably should. The day to day announcements of repeated all time highs can create a sense of inevitable continuance, and cause us to abandon our protective strategies, under the belief that their utility is simply unnecessary. A sobering way of viewing these situations is to remember that the market tends to go down in a much swifter fashion, than it tends to move up. This truth is realized too late for some investors, when a downturn suddenly occurs, and the gains which they thought they had (and perhaps should have recorded), have all but been eliminated. During these periods, a lowering of expectations for certain stocks in your portfolio, may prove to be beneficial, despite the astronomical rise that the market may be currently experiencing. When non-growth stocks positively break from their usual patterns, it’s important to learn to appreciate your good fortune, and to quickly record those gains before the market decides to reclaim them.
With the stock market encompassing the names of the most profitable companies on earth, it somehow seems sacrilegious to center any form of discussion about it, on lowering expectations. This is, after all, the same device which infused the exploits of greedy Wall Street characters into our popular consciousness, though it has also been the source of philanthropy for scores of altruistic millionaires, all benefiting from its functioning purpose as a vehicle of wealth creation. This duality of usage reverberates throughout the market, and transfers perfectly to the individual stocks which are held within it. Some may achieve celestial highs and significantly alter their owner’s financial arc, while others are consigned to produce only moderate levels of growth, but remain unapologetically resigned to being appreciated for what they are.
(Anthony Rhodes is a Registered Investment Advisor and owner of wealth management firm The Planning Perspective www.theplanningperspective.com)