Nobody gets justice. People only get good luck or bad luck.
Don’t ignore luck’s role in picking individual stocks. When investors lose money in the market, they blame their stupidity and quickly get back to recalculating their strategy.
“Maybe the number of days in my moving average was wrong.”
“Maybe I should have paid more attention to the price/earnings level.”
They conclude a minor adjustment will fix everything. But when lottery ticket buyers lose their investment, they quickly come to accept the outcome as the result of bad luck, get another dollar out and buy another ticket. Yes, a large loss in the stock market could be your fault, but sometimes the outcomes are the result of bad luck and unrealistic expectations.
The market is really pretty good as a fair value pricing mechanism.
According to Meir Statman, “When people buy stocks, they think they are playing a game of skill. When the stock market goes down rather than up, they think they have lost their knack. But they should take heart. All they have lost is luck. And next time, when the stock goes up, they should remember that that was luck too.”
This doesn’t mean diversification isn’t needed. Diversification reduces risk before the fact. It remains vital to reducing portfolio losses during times of high volatility, because no one can predict which region, sector, or factor will be hardest hit during market sell-offs. There’s no arguing that there have been some very successful stock pickers, but they are rare. Because of market efficiencies and a multitude of irrational participants, picking individual stocks is a good path to wealth destruction. Keeping asset allocation and diversification as the framework for portfolio construction greatly reduces the need for luck.
SCI HIGHLIGHTS
SCI Monthly Webinar
SCI leaders Bob Dunne and Jim Baldwin will discuss SCI heading into 2019
Tuesday, December 11th
@ 12:00 pm CDT
Join from PC, Mac, Linux, iOS or Android:
Click here for Conference Login
Meeting ID: 325 159 0655
Dial In Audio: 669-900-6833
Ocean Park’s Market Minute
Listen to Ocean Park CIO Terri Spath talk about supply and demand within the municipal bond market and how the recent midterm elections could have an influence:
https://www2.sierrainvestment.com/2018/nov/16
SCI Video Content Coming…
Stay tuned. LSIA VP Bob Dunne and LSS Business Development Associate Zak Sandeman are working on multimedia content for you and your clients to provide more color on the specifics of the Salt Creek Investors asset allocation strategy.
Feel free to reach out to Bob Dunne to make any requests or suggestions:
LaSalle St. Investment Advisors, LLC
940 N. Industrial Dr.
Elmhurst, IL 60126
Copyright © 2017 LaSalle St. Investment Advisors, LLC., All rights reserved.
As you consider the information provided with the Salt Creek Investors Asset Allocation Platform (the “Program”), please review the following:
The information and descriptions provided about the Program are for educational and information purposes only and should not be used or construed as investment advice, an offer to sell, a solicitation of an offer to buy, a recommendation for any security, or suggest any course of action. LaSalle St. Investment Advisers (“LSIA”) does not guarantee that the information or descriptions supplied about the Program are complete or timely. LSIA makes no warranty with regard to any results obtained from the Program or its deployment. LSIA is not responsible for any direct or incidental loss incurred by relying on information provided about the Program. The allocations presented herein are illustrations and completely hypothetical. None reflect actual investments or investment results and do not reflect allocation of any individual portfolio. Asset allocation and its results vary over time. Other allocations or asset investment categories not offered in the Program may have characteristics similar or superior to those illustrated. Past performance of any model or allocation is no prediction of future results. Neither the Program nor any system/model can predict the future of any market or price movement in a market. Diversification and asset allocation do not guarantee against the risk of investment loss, including risk of loss of principal. Information provided regarding the Program is as of the date of publication and may change at any time without notice. Information has been included which was obtained from third parties and is believed to be reliable and complete. LSIA does not warrant the accuracy or completeness of such information. LSIA is a registered investment advisor and does not provide tax, accounting or legal advice ‒ the information and/or descriptions provided do not constitute such advice. More information regarding LSIA and its investment strategies can be found in the LSIA brochure, ADV Part II, which is available online or through LSIA. Asset allocation may not be suitable for all investors. Before deciding to invest, potential participants should consult with an investment adviser to determine an appropriate investment strategy and methodology which meets the investor’s specific financial needs, objectives, goals, time horizons and risk tolerance. The information and description provided herein has been made without consideration of any investor’s particular suitability for investing in the Program. Asset allocation also involves investment in various asset classes which are not insured by the government. Investing in fixed income and/or high yield securities involves additional concerns including interest rate risk, credit risk and reinvestment rate risk. Investing in securities outside the United States may entail greater risk than investing in domestic U. S. markets. These risks typically include political and economic uncertainty of foreign countries as well as currency exchange fluctuations, including foreign currency exchange rates, political risks, different methods of accounting, financial reporting and foreign taxes. The prospectus accompanying a security should carefully be reviewed before investing. The services described herein are available to persons residing in any state where they would otherwise be contrary to local law or regulation.