The Last Dance...

The behavior of market participants never ceases to amaze me at the edges of market transitions. It happens in powerful bull markets and in draining bear markets. Human behavior is predictable, markets are not.

I lost a client this week. I am always a little bit sad as I know what is potentially around the corner. They gave me a plausible reason, but I know deep down they are moving because of performance. The hard part is they are right, I have under performed. For now. Unfortunately the future is unknowable. Hindsight will tell us, but hindsight can sometimes be unkind. I do not blame them, it is really hard to see everyone around you making money and you less so.

By all standards the valuations being paid today by investors cannot help but provide them lower returns for the next decade or worse a longer extended hangover period. Most of my clients understand this. I communicate as openly as I can but there is always a bit of career risk when you counsel clients to be prudent. It is really hard to stay the course.

It is really difficult behaviorally to fight the envy and greed when it seems everyone is making easy money. The hard part is that for now the easy money does actually exist, and it looks really easy. With all of the tech enabled paths to invest with little to no cost and the meteoric rise of the markets from the low of march 2020, it makes it so easy to throw a little money towards it and then you are hooked. Your amygdala takes over and all of the sudden brains are confused with a bull market. What the market giveth it can also taketh away.

The illusion though is that people think they will know when to leave the party. Alas, just like the drunkard that feels that they are okay to drive and will fight you for the keys, they will only know the correct point to leave in hindsight. For my clients I am the designated driver. The one humbly cajoling them to not fall sway to the siren song of easy money. To fight the envy and greed. To make decisions that most likely will prove to be in their own interest. For some that means stay the course, for others it means protecting your goals that are right around the corner. Investing is behaviorally hard, for those that allow me to keep the keys, I thank you. I truly am advising in an effort to be prudent with your hard earned monies.

I fell pray to the siren song in 2007/2008. I did not realize the playbook had changed. The power houses in Wall Street were no help. It is not good business to tell people that investing now has increased risks. The voices that were questioning the narrative we considered outcasts. The new price targets got even higher. The narrative changes from prudence and probabilities to possibilities. The conversations start to shift from earnings and valuations one year out to the contemplation three or four years out to justify valuations. The conversation of what is possible ignore in many cases any thing that deters from the narrative. The questions of what could go wrong or the real problems that may need to be faced were all explained away. Sound familiar?

Then with little fan fair the energy shifts. Buy the dip they will say, but they know deep down that they know not where the dip will end. The belief that all had changed and the various omniscient masters of the universe will again save the day, until they don't, nay can't. This shift will turn participants from ebullition and greed to fear and panic. Many will be frozen in their tracks, others will get out at the lows never to return until the next nearing of a market high. Such is the ebb and flow of wall street and the peddlers of advice. Most will do their best. Still, deviating from the narrative carry's with it career risk. It is a difficult time. People want to be told what they want to hear. The market does not care what you want to believe. It will teach it's lessons and ravage emotions.

Many investment advice givers do their best and under most time, over a long period of time, the right thing to do is ignore all noise. We are also human beings with many of the same biases and heuristics. Remember though where and by whom we are trained. The same industry that needs unbridled optimism. It is true that to be an investor one must be optimistic. It takes optimism to believe in the future. I do not believe optimism means ignoring valuation and prudent investing. I believe it makes sense to talk about the risks even though it is neither popular nor profitable. That optimism of staying the course does not take away the facts. It does not take away the probabilities. Many fall prey and see it as a way to financially catch up. A way to make easy money. For now it is working.

These times are the hardest time in my work. The courage to go against the grain. The self doubt as to whether I am guiding correctly as the market grinds higher. The lack of confidence as the narrative turns more and more hostile towards any talk of prudence. I knew in 2007/2008 that something had changed. I did half heartedly make shifts in client portfolios. I did half heartedly talk about the risks. It helped some but not near enough. I was not vocal enough. I only knew what I knew and I had not been tested in quite that way. It takes that kind of testing to get the mettle to go along the lonely path. I cannot stand idly by as this market is luring in a new generation and some old into a narrative that could possibly end very badly. The stakes are too high. If it ends badly, it changes lives, cancels plans. It creates anxiety and instability.

This is the time to think. It is a time to question the narrative. We are each responsible to ourselves and our success. It is time to possibly prepare for lower returns. It is time to review your circumstances and align yourself with what is good for you, your goals and your life. Nobody knows your life better than you. Do not allow the pull of greed to cause you to relinquish control. I do not know where this goes, but to me it is a time for caution and prudence. It may be time to decline the next dance as it seems to me that the last dance is near.

__________________________________________________________________________

Lewis B. Walker Jr., is a CERTIFIED FINANCIAL PLANNER ?, professional dedicated to the education encouragement and empowerment of individuals.

He uses the perspective from his journey of going from financial insecurity and five figures in debt to financial stability using hard work and an attitude of one hundred percent responsibility for his circumstances. He believes that money and all that goes with it begins first with the internal game and through commonly used tactics anyone can work towards becoming less financially insecure and find success on their terms. With his twenty plus years of counseling success he knows that money alone does not create true wealth, but with better money comes better lives. He writes about his perspectives on what he believes are the five realms of a truly wealthy life: Physical, Intellectual, Social, Spiritual and Economic.

He is a Financial Consultant with LPL Financial. For more information about Bob or hiring him to speak or assist with finances, send a message through LinkedIn.

The opinions are that of the author and are not indicative of LPL Financial or any other affiliations. Markets are extremely unpredictable and nothing in my post should be construed as advice or a prediction in any form. Securities are offered through LPL Financial, member FINRA/SIPC. The investment products sold through LPL Financial are NOT FDIC insured. These obligations are not obligations, nor endorsed, recommended or guaranteed by any government agency. Insurance products offered through LPL Financial or its licensed affiliates. The value of the investment may fluctuate. The return on the investment is not guaranteed. Loss of principal is possible.                   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP?, CERTIFIED FINANCIAL PLANNER?, CFP? (with plaque design) and CFP? (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

                   __________________________________________________

All photos were used through Creative Commons license or similar license from Pexels.com and Wikimedia.org