The trouble with humans and investing

The Post did an article today on new developments in the ETF market with bull and bear units that can be used to offset market risk when prices are lofty:  “Looking for shelter in a bear market.”  
 
I was one of the sources cited in the article.  In the future, as these products become widely traded, we are looking at ways that they may be useful in our own methodology.    Its just nice to have a mainstream player in the marketplace that has the product breadth of bull and bear investment options.  Unlike almost all the other players, BetaPro does not need to sell investors on long-only strategies in order to have customers.
 
We also wanted to point out Jonathan Chevreau's blog today where he cites an internal memo from a veteran Trimark funds manager, Tye Bousada who likens the recent commodities led bull to the tech bubble of the late 90's:

Bousada poses the following rhetorical question as well as a hint of a response: “The probability that a cycle keeps going diminishes with each passing year at an exponential rate.  It is much easier to keep growth going from year 1 to 2 than it is to keep it going from year 4 to 5.  Where are we in the streak today for global cyclicals?  Year 5.”  

Bousada makes no claim as to knowing when it will end. “We don’t know, but we do think we know how it will end.  The answer is badly for those caught up in it.”

One can't help but hear Tom Petty in our ears when we talk about this coming correction, “the waiting is the hardest part.” comes to mind.
 
But actually despite what our inner child may be screaming at us, we know from experience that although waiting can be hard to do, actually “the losing” is the much harder part.  And that is really what it all comes down to.  We get to chose,  We can either wait and profit from the coming sale, or we can jump in and lose heavily with the masses.  When we realize these are the choices, we think that it puts the waiting into some important perspective.
 
The trouble with humans and investing, is that we find it easier to talk the talk than walk the walk.  We see the need for discipline, but our common response is to want to abandon discipline if it fails to deliver results as quickly as we had hoped.  This is why most people suffer poor results and worse.
 
In our own practice we have learned over the years that clients will commonly fire a money manager for two reasons:  one, if you make them less than they believe others are making at a given point in the market cycle, and two, if they lose money.  This is what makes a money manager's job hard to do.  We must be able to stick the discipline and stay the course even when it looks to our clients that they are missing out, because we must also be careful not to lose their hard-saved money,   
 
Since we do have to chose between a rock–losing money, and a hard place–opting out of market runs that are dangerously priced.  We have learned over the years to pick the hard place. 
 
And so we must persevere with doing the right thing and protecting against loses even when the approach seems out of favour.  We must continue doing the right thing even though some clients will inevitably fire you for it and run back into the perilous seas of a bloated market.
 
Most people who have money, earn it by taking concentrated risks in their careers and business.  We invest our life energy making bets in our business and working hard at it every day.  Once we are able to carve out some savings above our spending, I see this as money we have managed to take from the”fire” and get into the pan.  Once this capital is out of the fire, the focus must be to protect and keep it for future use.  Markets, as I see it, are a risky place to blindly park ones savings.
 
Once we recognize that savings are hard-earned and difficult to amass, we must also see that they are worthy of great respect and careful investment.
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