Focus On Making Money All The Time…Not Some Of The Time

Even during the best of times, the process of investing is fraught with uncertainty and risk. Think about that for just a moment. During the best of times? Uncertainty? Risk? Really? One could be forgiven for thinking that during the best of times things should be good, clear, predictable, maybe even safe. Frequently, that’s not the case. Often, for investors at least, the best of times and the worst of times look disarmingly similar.

We all know what the worst of times, or in this case, economic turmoil, looks like. It looks a lot like what we have now -- sluggish economic growth, abnormally low interest rates, high unemployment, fiscal crises at the state, federal and global levels, etc. What do the best of times look like? Typically, markets are moving broadly higher, corporate profits are strong, interest rates & inflation are low, and most investors are making money. Take note that there is no green light signal. Even though things are good, worried speculation on the street and in the news is invariably about over-valued assets and imminent corrections and/or contractions destined to send asset prices appreciably lower. Once again, this looks a lot like what we have now – markets moving higher, strong corporate profitability and, without a doubt, plenty of worried speculation.

Since good times and bad can appear the same to investors, switching back & forth between risk seeking (i.e., make money) and risk averse (i.e., avoid losing money) investment strategies is a fool’s errand. It’s much better, in my view, to remain focused on making money all the time and continuously employ investment strategies that are consistent with this stance. Importantly, this does not prevent or eliminate periods of negative investment rate-of-return. What it does do is tilt the odds in your favor that the positive cycle rates-of-return will more than offset the negative cycle returns leaving you, the investor, with a net gain.