Simmons Asset Management

By: David Jacobs

The four most expensive words in investing are: ‘This time it’s different.’” So said Sir John Templeton, the legendary investor who Money magazine called “arguably the greatest global stock picker of the [20th] century.”

But time after time, many investors get spooked when the markets are turbulent, even though a certain amount of volatility is inevitable. When asked how investors should react to recent market gyrations, experts generally respond with some version of “don’t panic.”

The world is not ending, insists Theodore Samuels, a Harvard-educated portfolio manager with Capital Group in Los Angeles. In fact, corporate profitability is strong and recent volatility has been below what one would expect at this point in the bull market, he states in a September commentary.

“After all, we haven’t had a 10% correction since 2011, which is unusual given the above-average gains we’ve experienced during that time,” he writes.

Which is not to say that there is no cause for concern at all, says Rajesh Narayanan, an associate professor at LSU in the Department of Finance and the MBA program. Global demand has slowed, emerging markets are not doing well, Europe is “in the tank,” and U.S. job growth has slowed thanks in part to low oil prices battering the energy sector.

While the worldwide economic crisis may be over, deep scars remain, Narayanan says, so it’s important that our expectations are realistic.

“You had a patient who had this massive cardiac arrest,” he says, “and you want them to run a marathon one month later. That’s not going to happen.”

Baton Rouge financial planner and portfolio manager Mark Simmons says he’s “not really concerned much at all” about the global economy.

“There are some bad things out there, but there are also a lot of good things,” Simmons says. “Which is always the case.”

Simmons says there likely are bargains to be had among companies whose stock prices don’t fully reflect the strength of their earnings and balance sheets. Andy Bush of Horizon Wealth Management suggests now might be a good time to consider buying stock in companies that aren’t going anywhere any time soon, like ExxonMobil, Chevron, General Electric or Johnson & Johnson.

Bush mostly avoids watching financial cable channels, and when meeting with nervous clients, he tries to cut through the day-to-day media hype. He says he sees little reason to fear that the U.S. economy is headed for another recession.

Bush says re-evaluating an investor’s plan, making sure their asset allocation still fits their goals and risk tolerance, often is a good way to ease anxiety. While many investors will shift money from stocks to bonds or cash as they get older, Bush says most people should retain some stock exposure to ensure decent returns even into retirement.

“Nobody knows when that last little grain of sand will go through their hourglass,” he adds.

When markets perform well, investors tend to be less concerned about how much risk they’ve taken on, says Christopher Boggs, an executive with SRS Wealth Management Group. But when markets are volatile, investors who have exceeded their personal risk tolerance tend to make rash decisions that will do more harm than good.

He says there are good investment opportunities to be had in the current climate. But if you jump into a relatively aggressive investment, he recommends countering that opportunity with something more conservative to maintain your portfolio’s overall level of risk.

“This requires a quantifiable strategy, which we hope all investors have access to through their advisers,” Boggs says.

Jason Windham, president of The Shobe Financial Group, joins the chorus calling for investors to make sure they’re properly allocated for their personal goals and risk tolerance.

“There is a very big difference between investing and having a savings account,” he says. “If you’re going to invest, you’re going to experience some volatility. … If you can’t be invested in a true investment over three years, then you probably don’t need to be invested.”

As an example of an adjustment one of his clients might make, Windham describes a hypothetical investor who had a certain percentage of his money in the energy sector. The industry’s recent downturn has caused that percentage to decrease, so the investor might sell something that has performed better to buy more energy stock and rebalance the portfolio.

“That is the function of selling high and buying low,” he says. It’s good to have cash on hand in case you need it, but Windham reminds us that even cash carries some risk, because its buying power can be eroded by inflation.

The bottom line is that you probably won’t be able to time the markets with consistent success. You don’t know what the markets will do, but you know your own needs, and you know how much risk you can stomach.

So when you re-balance your portfolio, Narayanan says, do so based on what you know, not on what you think the stock market might do. Which he admits isn’t exactly a novel suggestion; your grandparents might have told you the same thing.