Real Investors Root for Down Markets

If we’ve got investing time horizons that span more than a decade (and the majority of us do), it is irrational for us to be rooting for new all-time highs. Real investors don’t get excited by perpetual new highs because they understand that it means lower expected returns on new money invested. They also understand that it makes their jobs harder.

David Merkel (Aleph Blog) frames this issue perfectly:

Every now and then, the market falls apart.  At such a time, two things happen.

1) Because some sector of the economy had too much debt, prices for the stocks and corporate bonds (or trade claims) fall, and the market as a whole falls along with them, though to a lesser extent.

2) During the crisis, many assets get oversold, and those with better knowledge can profit from the overselling.  The best example I can think of all of the hedge funds that bought non-agency mortgage-backed securities, when they were thrown out the window indiscriminately in 2008, and many of those securities have returned to par.

The ability to achieve alpha (outperformance) increases after a crisis.  Some who prepare for that, like Seth Klarman and Warren Buffett, create their own outperformance by taking more risk when other investors are running away in panic.

As my boss asked me in 2007, “Why have you not done so well for us the last few years, when you did so well 2003-5?  I answered, “When I came to you, the market was like an apple cart  that had fallen over and I picked up the undamaged apples.  Today, the market is rational, and there are not a lot of easy pickings to be had.  That is the difference between the bust and the boom.  It is much easier for a fundamental investor to act during the bust.

Assuming you’re continually earning income and rolling the excess into some kind of investing vehicle, what you’d like to see is more upset apple carts, not less. You get more of that sort of thing in a market downtrend, not while the floor traders are wearing funny hats commemorating the latest broken record.

Source:

The Investments Matter More than their Form (Aleph Blog)

Read Also:

Tough Week (TRB)

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. shawn commented on Nov 29

    .

    ñýíêñ çà èíôó!

  2. manuel commented on Jan 21

    .

    ñýíêñ çà èíôó!!

  3. perry commented on Jan 23

    .

    ñïàñèáî.

  4. Blue Coaster33 commented on Apr 30

    Third Flower

    My spouse and i are actually now delighted that Albert could execute his scientific tests because of the concepts he had by means of your website. It is once in a while perplexing to simply usually be making a gift of measures which many people could h…

  5. Blazing Trader Review commented on Sep 22

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  6. bitcoin loophole review commented on Sep 28

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  7. immediate edge reviews commented on Oct 01

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  8. garmin t 5 dog collar commented on Oct 22

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  9. Digital transformation commented on Nov 04

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  10. Azure Devops commented on Dec 09

    … [Trackback]

    […] Find More Information here to that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  11. 토렌트사이트 commented on Dec 19

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  12. diamond art commented on Dec 29

    … [Trackback]

    […] Find More here to that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]

  13. more information commented on Feb 04

    … [Trackback]

    […] Here you will find 89830 more Information on that Topic: thereformedbroker.com/2014/08/03/real-investors-root-for-down-markets/ […]