Patience Pays

I was offered some great advice over the weekend. It came from a close friend of mine, who like all of us, lives everyday in the unforgiving domain we call the financial markets. In essence, his advice was less about what I should or can do, and more about what not to do.

As humans, we are prone to make mistakes. The market is there to take full advantage of this - whether it be overextrapolation of market data, conservatism, overconfidence, the problem of data mining, regret aversion or the plethora of other roadblocks faced by market participants - we inevitably will fall victim to some if not all of these behaviors.

Our internal operating system is very human. It is naïve to think that we are so unique and therefore can disregard biases that are imbedded into our own psychological makeup!

My friend cautioned against data mining and the futile attempt to seek out bullish (bearish) evidence in the face of an overwhelming bearish (bullish) market. In a nutshell, our conversation came back to one thing and one thing only. Price. When a new directional regime is underway, the charts will be the first to tell us.

If you follow markets, datapoints that go against the current weight of the evidence will grab our attention. We can’t get enough of them. But are they constructive/helpful to us as investors? Probably not as much we think. They will get a lot of attention online - but in my opinion, they do not serve us.

“It's quite exciting," said Sherlock Holmes, with a yawn.”
― Arthur Conan Doyle, A Study in Scarlet

Investing should be boring. Full stop. Whether you’re putting on a short-term FX trade, scalping equity ETFs or buying stocks for the long-term. Nothing about the process should be exciting. Some of us enjoy the due diligence and risk management process. We may derive joy from this, but when the trade is executed and your money is at risk, nothing about it should be exciting. Now we are human, the prospect of potential monetary gain does light up our brain -However, if this expectation is the driving force behind our decision-making, we’ll likely end up disappointed and with less capital. Market returns take time and a whole lot of patience. I don’t care if you’re a buy & hold investor or a short-term systems trader. Returns take time. Strategies with a 35% win rate need time and proper risk management to corroborate returns. Buy & hold investors need time and proper asset allocation to realize returns. No matter your investing approach, time and patience is needed.

This is nothing I came up with myself.

When things take a proper turn and a new bull market is underway, price will be the first to tell us. Below are some charts that will assist in that determination.

If we are in a strong equity bull market, the retail sector is likely not just participating, but outperforming the broader market.

Discretionary (risk-on) will outperform Staples (risk-off) within a strong equity bull market.

Widening credit spreads bode poorly for equities. In a strong bull market, spreads will narrow as oppose to widen.

That’s enough out of me.

SM

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. Please contact your financial professional for more information specific to your situation.