Bull or Bear? And Why You Should Care!

NOTE:  This article was first published in January 2008.

Are you a bull or a bear? Gosh, in today's market I think most of us would prefer to be a mouse and hide in the back of the cupboard with our little piece of cheese!

Frankly I hate the propaganda mill that is known as the financial markets press that continually tells us not to worry (or to worry a lot...depending on the day). Instead, I have always sought to develop a strategy that will protect my clients' wealth ALL of the time. What I have come up with is a bit contrarian, off the beaten path and requires those who work with me to take responsibility and to take action. To the extent that one follows this plan, I believe it will work. But, it is not perfect and we all are prone to sloth and taking the path of least resistance.

One component of my plan is managing client investment portfolios. The first thing I usually notice when a new client shows me his net worth is that they have too much of their wealth in the market. In fact, most of us have too much of our wealth in the market. We ought to reconsider that choice, but I recognize that changing this takes time.

In handling market assets, I follow, for the most part, modern portfolio theory, establish well diversified and risk adjusted portfolios and seek to minimize losses, choosing some level of active management over "buy and hold."

Some people ask me if I "market time" and the answer is an emphatic "no". But, I am also simply not going to stand by and watch my clients' accounts suffer huge percentage decreases while all the while saying such things as, "Don't worry, the market always rebounds and over the long term...blah, blah, blah." You've heard it all before.

But when to make defensive moves or to enter the market is no easy task. In fact, in most cases the time to make moves is exactly OPPOSITE what one would FEEL is right. Which is why I don't go on feelings, but use certain market indicators to assist me. Now, I don't have a perfect system and no one can account for the market manipulation of the Federal Reserve or other international events. But on the whole, I believe that making these strategic moves is beneficial to my clients' accounts.

Occasionally I will read a piece like this:

News Item 1

and then immediately find a contrary piece like this:

News Item 2

Now it is my job to read all of this data and to make sense of it and make moves for my clients. That is why people hire me. But I wanted to demonstrate how difficult it can be to know when to stand pat, when to take defensive moves or when to go against the tide and invest.

I do my best to protect a client's wealth, but if you don't have an advisor or if you are losing sleep at night, worrying about the market, I would recommend the following:

1. Determine whether or not you have too much of your wealth in the market and where else you might invest it. Check this article out for help in that arena; and

2. Then perform a "risk tolerance" examination on yourself and modify your existing portfolio (if it's too risky) to have it more in tune with your tolerance for market fluctuation.

This won't guarantee you no losses in the market, but it should make your market assets a more valuable component of your overall financial plan.