Can I sit on the fence or must I pick a direction? That is the question many equity investors are grumbling about these days as the U.S. markets have quickly priced in fears of future inflation, a beat up dollar and floundering Treasury prices. The markets continue to exude volatility as volume declines and market variables repeatedly fluctuate. The S&P is approximately 40 percent below its all time high and 40 percent above its bear market low in early March, leaving investors split down the middle on which way to head from here.
Maneuvering your individual equity positions through these markets can be a daunting task, especially when you don’t have the time to commit.
Too many people get caught up in the weekly investment news when their objective is long-term growth. It does not take long for “analysis paralysis” to set in and discouragement to lead your money to the sidelines.
To get your head out of the sand and feel confident about your investment portfolio, you should devise an overall economic opinion or share one with your investment professional. Building your investment portfolio based on numerous macro-economic themes will allow you to take the short sightedness out of investing.
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Warren Buffet is a great example of long term macro-economic investing. I tend to frequently think of his famous quote, “Be greedy when others are fearful and fearful when others are greedy.” Buffet tends to buy into sectors he understands and believes will have a substantial demand in the future, even if it is out of favor at the present time.
When creating individual positions alongside your investment professional, it is equally important to understand risks due to macro-economic events. This was evident in my last quarterly commentary regarding the Federal Open Market Committee artificially pushing treasury prices to all time highs in order to stimulate the real estate markets through low interest rates.
I used the analogy of a beach ball pushed under water. Sooner or later rates would pop back to the surface. This produced immense interest rate risk for investors locking in low rates on fixed income investments.
If you find yourself active in trading, it is also important to define each position in your portfolio as an investment or trade. It is essential to have realistic sell price targets on all trades. Investors mistakenly make their losing trades a long-term investment by ignoring downside sell price targets.
If you are a long-term growth investor, implementing a macro-economic thesis alongside your investment professional may prove prudent and prevent you from stressing about the daily Wall Street market hype.
Griffin Dalrymple, a wealth manager with Coastal Wealth Investment Group, LLC., can be reached at (941) 847-0035, ext. 222.