For over two years, economists have been predicting a recession. As their timing has proven quite poor, recent market gains were built on the expectations that they were flat-out wrong. Proper perspective is that recent market profits provide ballast to endure all the downside the market can throw at us, rather than letting our risk tolerance ebb and flow. Long-time participants should have plenty of ballast by now. It is the recent new participants who might be victims of downside where they might not have a fair dose of time to build profits to then play with “house money”. This is why we are very slow and methodical with cash when given to us in large lumps. I have been recently squirming with a strong market and the half-cash positions of several clients who recently received life-changing amounts of cash from business sales and other events. It appears reprieve may have arrived.

Warren Buffet is right when he says that the people who win the investing game are the ones who apply risk the most consistently over the longest period of time. This is why Segment does not stomp on the gas and then the brake. That kind of behavior adds new risks since our barometer is unreliable. Aggressive driving can burn up the brakes and clutch since it adds friction of taxes every time we move. Remember also that unrealized gains are tax-free at death, so maintaining those untaxed gains puts the IRS at a huge disadvantage. Maneuvering could prove wrong, but definitely causes premature taxes. Unrealized gains are the currency of wealth, not the process of timely rotations.

Many people want to turn stock investing into a kind of game against which they match wits. This mindset is fraught with pitfalls. People tend to remember an idea that worked out but forget all the times they made a move and were wrong.  This lack of clear hindsight creates over-confidence that one’s prognostications are correct. People also tend to gamify investing as chips on the table and envision the game as swapping chips. Yet, with stocks, the chips change in value and do so with an upward value bias. This is because companies are very adept at improving their businesses, and employees are incentivized to perform their jobs better over time. On a daily basis, yes, stocks rise and fall from sudden demand for those “chips” or sudden distaste for them. Over the long haul, however, stocks weigh the value created by the forces within.

The best path to investing success is to fully understand one’s own appetite for risk and reward and build an all-weather portfolio for that set of objectives. You will get tied up in knots trying to maneuver amongst the waves, with the IRS wanting their share of every win, especially all prior wins aggregated, but not wanting any portion of your losses. When stocks rise in 81% of all daily 12-month periods, sheltering from those odds is investing suicide. The scales are heavily tilted toward high-quality company stock ownership over very long time periods.

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