Sitting On The Fence

Nov. 24, 2013 9:50 AM ETGLD, GTIP, ITIP, OIL-OLD, OLO-OLD, SPY, STIP, UDN, USO, UUP, SLV20 Comments
Edward Hoofnagle profile picture
Edward Hoofnagle

Sometimes we look for solace from market advisors. One of my favorites comes from Minynanville: "Missed opportunities are made up easier than losses."

And while this viewpoint provides some consolation, the feeling of missing the lion's share of this year's bull run cannot be washed away so easily. After prematurely exiting in early 2013, some fence sitters (like me) have been waiting patiently for the correction that never came, and each successive level up adds to the annoyance of trying to be too selective in making an investment decision and in outsmarting yourself. Regrettably, once you begin to miss that upside, the psychological impact of "anchoring" starts to drag on your opinions. When one is making the psychological error of anchoring, one ignores the merits of the current level and remains fixed on that level where he or she exited the market. The anchored investor keeps thinking about how many points the market has moved "up", how many points it has moved away from their old target. It is well documented that such reasoning is flawed, and yet, it is a part of human nature. As financial advisors, we know that the most appealing strategy to counter "anchoring" is to consistently invest in small increments and take advantage of the dollar cost averaging. That's the normal advice, and it remains an effective tool.

Let's take a look at the current state of affairs to judge the risks and rewards:

On the plus side, there are positive, albeit muted bouts of good economic news - GDP seems to be pushing against the new normal of 2.2-2.5%, and inflation seems to remain in check. Industrial activity is increasing (thanks to domestic energy production), and there are signs of pent up demand in capital intensive industries. In short, the US has been described as the best of the lagging markets, so the investment thesis

This article was written by

Edward Hoofnagle profile picture
Edward Hoofnagle founded and sold a variety of companies in the technology and consulting industry, and currently manages an investment portfolio of private companies. Ed also provides business advisory services and offers interactive seminars for entrepreneurs and family offices related to financial literacy and charitable planning.

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