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A Behavioral Approach to Investing

Using Scientifically Engineered Models

A Myopic View

The S&P 500 is up nearly 5% the first 3 weeks of the year. Following the euphoria of 2017’s 20% rally in the US stock market, market participants are buzzing with the prospects of another 20%+ gain. Few people see any possibility for the market to lose money in the foreseeable future. Looking at the market the past 9 years, it is easy to get sucked into the belief there is no downside to investing.

This of course should worry anybody that has studied history. Ten years ago we were in the midst of a bear market, yet few people believed what would happen in the coming months. Most thought it was a “normal” correction and the market would resume its upward trajectory. Every drop was thought of as a buying opportunity. Panic didn’t start until major banks were on the verge of failure. Even after the Federal Reserve and Government stepped in during September & October markets continued to drop.

 

Throughout market history we have gone through cycles like this. Human behavior causes the bubble and exacerbates the market crash. The best way to overcome a myopic point of view is to take a step back and study history. Looking at both the length and trajectory of this part of the cycle should scare anybody that believes the market can only go up.

 For over 25 years we’ve heard people proclaim “I don’t need an advisor” during the good times only to scream “Somebody help!” when the bubble inevitably bursts. We’ve also learned from our own short-comings and have attempted to do a better job both educating our clients and advisors on their own behavioral biases as well as coming up with investment solutions that are designed to compensate for these biases. 

 

If the market continues its march higher, we will celebrate for all of our AmeriGuard portfolios as they are designed to give clients some participation on the upside. Of course when it starts to tank, we will be thankful for our tactical and dynamic portfolios which are designed to take defensive measures when the trend reverses.

 

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New Kent, VA
Jeff joined SEM in October 1998. Outside of SEM, Jeff is part of the worship team at LifePointe Community Church where he plays the keyboard and bass guitar. He also leads a small group Bible study.