Early in my entrepreneurial career, I got involved in a small restaurant group.
The manager of the venture was a friend of mine, an ex-Marine JAG who wanted to get into business for himself. The plan was simple: open a small franchise restaurant in Minnesota. This was the 1990s, and we could choose from a whole range of franchises.
The manager narrowed it down to two choices and presented them to the group. We deferred to his judgment and let him pick which he thought would do better.
And even though he was under no obligation to do so, the business manager went back to work as a corporate lawyer and eventually paid back all his investors in full.
Of course, I wasn’t relying on that. It was one investment I had made among many… And I only put up a small portion of my savings.
But had the manager taken the other option, a just-about-to-boom Subway sandwich shop, things would have been a lot different.
Our little restaurant group would likely have been highly cash-flow-positive and expanded to multiple locations.
From my perspective, success or failure in this venture essentially came down to a coin flip. Not skill. No matter how much work you do, the role of chance can wash away years of planning.
The same thing can happen with your stock investments. Fortunately, you can prevent this kind of problem from ruining your nest egg – without passing up potentially lucrative opportunities…
Many investors and other wealth seekers take the view that they have to seek out one big bet and pile in. They figure if they search hard enough, they can find that sure-thing stock or strategy that will turn them from a wage-earner to a wealth spender.
Everybody wants to be the bold investor who shorted the housing market or the dot-com boom at exactly the right time.
But for every investor who pulled those tricks off, you will find hundreds who went bankrupt.
Fortunately, there’s a better way to play the market’s ups and downs.
Don’t try to time them with an “all or nothing” decision. Instead, simply tilt your allocations. It’s that easy.
Don’t ever decide that it’s time to sell all your stocks… or to load every penny you have into them.
You have many more possibilities for how much risk you want to allocate between stocks, bonds, cash, and other investments.
For example, do you remember the January 2016 crash?
At the time, China’s stock market had dropped and anything with risk attached – like stocks and high-yield bonds – came tumbling down. One Wall Street analyst published a note that it was time to “sell everything.” I took him to task in one of my newsletters that month…
There’s a reason you don’t often see bold pronouncements like this from serious research shops… It’s terrible advice.
Not a single coherent investment strategy relies on selling all of your positions based on a prediction of a market crash. No successful hedge fund, portfolio manager, pension fund, or private wealth manager operates on such a nonsensical scheme.
At times, you may increase your allocation to cash and defensive plays. You may add some short positions.
How would you feel today if you sold everything in 2016 at the January bottom… and then watched the market rally nearly 50% higher?
Don’t time. Tilt.
The best way to minimize losses and stress in most market downturns is through asset allocation, diversification, and stop losses… not changing your entire portfolio based on what might happen in the next month.
We suggest that investors look at their overall portfolio allocations today…
For example, you should absolutely have a properly sized bet on the “Melt Up.” And you should also have the right amount of cash to make sure you feel safe in the eventual “Melt Down.”
No matter what, never put yourself in a position to panic. Simply tilt your portfolio so that it’s aligned with the opportunity the markets give you today.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig
Bill Bonner went to law school with Fed Chair Jerome Powell... Co-authored 3 New York Times Best-sellers... And is one of America's most successful entrepreneurs. Bonner's made 3 big macro-economic predictions in his 40-year career, all of which came true. Now he's issuing his 4th and Final Warning. 2023 could be a difficult year for you and your money. See Bonner's warning and 4 recommended steps here...
Source: Daily Wealth