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Written by: Dan McKenna
I’m new here.
The best word I can think of for explaining the experience of being a freshly-graduated analyst entering this market is… baffling . Every week I read the news that markets are hitting new all time highs, that we have shaken off the effects of the global financial crisis and that excellent Q2 earnings reports are the catalyst that will push stocks higher. There is almost a weekly reminder that markets do not die from old age. Yesterday, the Dow climbed back above 22000 as investor fears retreated.
On the other hand, every week I also read articles from investors screaming that the end is near, markets cannot possibly keep up with their current pace, P/E ratios are outlandish and we need to be paring back risk. For example, a month ago, the co-founder and chief executive officer of DoubleLine Capital LP, Jeffrey Gundlach, said that risky assets are overvalued and that investors should be “moving toward the exits.” Since then, markets have pushed even higher.
No wonder the average client is looking to their advisor with a look of complete confusion and truthfully, a fair amount of fear. In times like these, the words of my graduate-school mentor (one of the most brilliant finance professionals I know) often ring in my ears. He always reminded me of a piece of wisdom I want to share with you:
Nobody knows anything in this field.
By that he means… nobody knows for certain what is going to happen. If we truly did know the future, we’d never have to work again. We could all leverage up, pick the winners, and make so much money our eyes would glaze over. But we don’t know the future. That’s why we spend so much time crafting diversified portfolios and picking the right amount of risk for each individual’s unique tolerance. Face it: you’re probably not going to achieve your daydream of being the protagonist of The Big Short who calls the financial crisis before it happens.
Related: The Big Problem with Buy Low, Sell High Advice
We have to understand that the difference of opinion is what makes a market exist. Don’t forget that there is an incremental seller for each and every buyer in the market. Right when you’re convinced to buy a security, someone else is convinced to sell. That is just how it works.
The simplest thing to do is to remain calm and stick to your plan. At Sherman Wealth Management, we use broad-based financial planning that is designed around your unique risk tolerance and your goals. Unless it directly affects your financial plan, ignore the noise in the markets and that nagging voice in the back of your mind that screams sell every time you read a negative piece of news.
I might be new here, but I can predict the future just as well as the next guy.
Our summer intern turned part-time associate Dan McKenna wrote a great piece about his experience being new to the biz that I thought was worth sharing.