As I write this article, stock markets are rallying from their lows and
optimism is taking hold. A month ago, stock markets were testing new lows and pessimistic views were making
headlines.When you read this article, stock markets are either up or down with optimists (bulls) or
pessimists (bears) prevailing.
A recent headline read, “Are we in the midst of a bear market rally or at the start of a new bull market?”
The answer is, we don’t know. The fact is, we won’t know until historians tell us where we were. Another fact
is that life goes on. This means that arguing over whether or not the “bears” or the “bulls” are correct is a
waste of time. This does not mean that you ignore what is happening.
Let me try to illustrate this with an example. Living in Calgary, we get to experience the four seasons of
the year. Unfortunately, on occasion we experience all four seasons in one day! This occurs rarely, but it
does happen. Does this mean that I leave my house every day with articles of clothing suited for all weather
extremes? No, I rely on historical weather data (snow storms occur less frequently in July), predictions from
reliable weather reporting sources and my ability to look out the window to see what the day holds. Based
upon this information, I leave my house knowing that I am adequately prepared for the day.
When it comes to investing, I do the same thing. I look at the historical data (recessions, even depressions
come to an end), rely on sources that I consider credible, and decide for myself what the economic outlook
holds. Based upon this information, I choose an appropriate asset allocation that prepares me for the
future.
The problem arises when one interprets the historical data. Since data can be manipulated in a variety of
ways, it is sometimes difficult to distinguish between credible sources and those advancing their own agenda.
Not knowing what (or who) to believe often results in inaction, causing a condition Jeremy Grantham (a well
known investment strategist) calls “terminal paralysis.” This inability to act on an investment strategy can
be as damaging as adopting an incorrect strategy.
So what do you do? Quite simply, look for opposing views on any opinion that you see, hear or read about,
that may influence your decision-making process. At the very least, this will temper an overly
pessimistic/optimistic viewpoint. At the very best, it will expose those who are exploiting a situation for
their own benefit.
Now that you have an opinion on the investment climate, make sure you have an investment plan that works
specifically for you. Last summer, I wrote an article on this subject called, “Are You Emotionally Involved?”
It discussed the need for a structured investment plan and how to implement the strategy. I suggest that you
re-read the article and decide if it would have helped you make better investment decisions during the past
year.
There is no one who can predict the future (bears and bulls will continue to be at odds, with no hesitation
to express their views), but some viewpoints are more credible than others. Knowing the difference will make
you a better investor and reduce potential stress associated with your personal finances. •
Peter Murray is a Senior Financial Advisor with Assante Capital Management Ltd. (Member CIPF) in Calgary,
Alta. Email your questions or comments to Peter at pmurray@assante.com or check out his website at assante.com/advisors/pmurray.
