Content provided by Paula Wieck, CLS Manager of Investment Research
The other day I was at my desk, trading portfolios. I knew I was going to have to go get lunch at some point, but I became so engrossed in my analysis that I waited way too long and had become famished – and crabby, very fast! My plan was to go to the grocery store to buy something healthy (and avoid fast food), but as I frantically zipped through the aisles for something nutritious, I came across the Halloween candy display. Uh-oh…if anyone knows me well, they know my biggest weakness is chocolate. So, in my irrational “hangry” state, I crumpled. I bought the biggest bag of candy bars they had and brought them back to the office. So much for my plan to eat nutritious!
It’s interesting how stress and emotion can hamper your decision-making. Had I packed a healthy snack to eat before I became so hungry, I would have probably stuck with my longer term plan. What’s my point? Why am I talking about my little diet cheat on a financial blog?
My point is that investors can become “hangry” about their portfolios. Especially ones who are making hasty trading decisions based on headlines. The most frequently asked questions we received this last month were, “What are you going to do in reaction to an attack on Syria” and “How we were gearing up for the potential announcement of Fed tapering?” While these are intelligent and no doubt serious questions, my answer was to stay the course.
The only thing we will be doing based on headlines is taking advantage of the market’s overreaction to them. We will continue to buy segments of the market that have attractive growth potential, coupled with cheap relative valuations, to add value to our clients’ portfolios over time. A market reaction to a headline will allow us an opportunity to buy these favorable sectors of the market “on sale” or sell the less favorable ones at a premium (making a nice profit), depending on what the headlines are relaying. Don’t let that headline tempt you like the Halloween candy display tempted me.
So just to reiterate – don’t go to the store hungry…and don’t trade your portfolios on the latest headline. Both actions can be detrimental to your long-term results!