The note below is what I shared today with a Client and want to share with you too…
This is no doubt a uncomfortable situation. At 360 Family Office we have a investment philosophy aligned with Dimensional Fund Advisors. That philosophy is built by Nobel Prize winners as well as doctorate holders on actual statistical outcomes, not opinions based on fear or a guess. The philosophy includes a plan for the upside and downside market environment. It is primarily represented by asset allocation before market events that reflect the financial profile and needs of our clients. Said another way – we know the markets go down and we should not be surprised when they do go down. Patience is the primary risk management control when downside volatility occurs. We allocate assets in advance so that if there is an income or capital access requirement, that amount is segregated and invested in low volatility assets.
I do not believe that one can know when to sell or buy or exit or enter when markets are going up or down. That belief is built on historical data that proves that markets are random and not predictable. The historical evidence also indicates that markets always return to a true value and that not trying to time things while in an event, has been proven to be the best policy.
Here is how “market timing” looks from our seat. Once one sells equity assets on the downside, a loss is booked. How to recover that loss is to re-enter the market at some point. What point will be a guess inspired by a return to confidence. That confidence is built on the markets performance rising and that means staying on the sidelines while the upside occurs. If you return to the market when it feels safe, it usually means a permanent loss as the statistical history tells us that missing the 5 critical days means a significant, permanent under-performance. Those 5 missed is what confidence is built on and this is why most people that do it themselves have sub par performance. Our philosophy does not discourage others’ selling and timing because if some people don’t hurt themselves and under-perform we have no chance at out-performing.
This is an event – not a permanent state. Demand growth did not cease to exist. If you remain in place and let the fear subside, those that sold will come back into the market because they have to. Everyone cannot time their buying at the bottom of market volatility. There will be a stampede back into the markets, the same as we see going out of the market. If one sits quietly, they will experience the markets return as always and the return has historically been higher than where the downside started from.
I hope that explains your asset management process clearly.
If not, will you please share what clarification is desired?
As always, standing by if I can be of assistance.