Knowing When to Fold’em

An “irrational quest for safety drove all kinds of nutty economic and investment behavior in 2011.” So said the Chairman and Chief Investment Officer of the brokerage firm, T. Rowe Price, a couple of weeks ago at a media conference in New York, as reported by Advisor One, an on-line investment newsletter for financial professionals.

He went on to say that “irrational thinking explains … why people are terrified of risk and volatility.” I can understand the frustration. When the markets take a downturn, many advisors and their investor clients sell their investments and park their money in cash. In other words, they sell when the market is low, and want to wait until prices rise before they get back in.

Isn’t this something like telling your spouse not to buy those Holiday Gifts if the prices are too low? Try to find something that went up a lot – preferably a whole lot – and buy THAT gift? If that is irrational behavior when you’re shopping for the holidays, wouldn’t it also be irrational behavior when applied to an investment portfolio?

The S&P 500 stock index opened for the year 2011 at 1257.

According to the Wall Street Journal this past weekend, the big banks and brokerage firms are now forecasting where they think the index will land on December 31:

* 1425 – Deutche Bank
* 1350 – UBS, JP Morgan
* 1325 – Citigroup, Openheimer
* 1270 – Credit Suisse
* 1260 – Barclays
* 1250 – Wells Fargo
* 1238 – Morgan Stanley
* 1215 – Bank of Montreal
* 1200 – Goldman Sachs
* 1130 – HSBC

As of the end of business last week (11/28/2011), the S&P 500 closed at 1192.55. Does this means that the forecasters at Goldman Sachs are right? And the other eleven forecasters are wrong? Who knows? We’ve got the month of December to see where things fall. Although somebody’s got to be close, it seems almost random, doesn’t it?

So, doesn’t this information just add to the confusion? How can all of the forecasting and technical analysis in the world possibly be used by financial advisors and their investors to successfully “beat the markets”? The answer is that it can’t.

About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry