“Never make predictions, especially about the future.” – Casey Stengel
Next week, we will be celebrating our son, Yonatan’s bar mitzvah. It’s been a challenge trying to plan the Shabbat with COVID starting to rage once again, and being the end of December, not knowing what the weather will be. For the last week, I have been looking at the extended weather forecast, hoping it will not show rain. Over the last few days, the forecast has improved, but with a week to go, who knows?
In Tractate Sanhedrin 22b, there is an interesting question of whether a kohen (priest) is allowed to drink wine nowadays. The issue is that there is a prohibition for priests to serve in the Temple if they have drunk wine. If the third temple were to be rebuilt suddenly, it follows that a kohen who knows when he would be working in the Temple should not drink wine on that day. If he does not know that day but knows the week – he should not drink wine that week. And since Kohanim today have no clue as to the Temple schedule, they should not drink wine ever.
Rabbi Yehuda Hanassi answered that although it is true, what he can say is that since their ruin (not being able to serve in the Temple) is also their help: It has been many years that the Temple has not been rebuilt, and they can now drink wine any time. He is basically saying that we can sort of predict the future based on the past. It’s been 2,000 years since we had a Temple so the odds of it coming specifically tomorrow are slim.
People love to predict things, especially the direction of the stock market. Everyone knows which way the stock market will move, correct? We all hear stories of how so and so knew that the market was about to crash and sold off her entire portfolio, or another who knew exactly when the market had reached its low and invested everything she had and became a multi-millionaire. Sounds easy, right? Wrong! If it was so easy to predict a market crash, where have the doomsayers been consistently wrong in their crash predictions?
I’ve been in this business for more than 25 years and have constantly been hearing predictions of a crash. In those 25 years it’s happened three times. When it finally does crash, they insist that it will keep dropping and dropping and think it will go to zero. Each time, the market has totally recovered and the big drops were soon forgotten.
DO YOU REALLY think it’s easy to predict the future? Look no further than the latest 10-day weather forecast to see how difficult it is. Our trusted weather forecasters with the most sophisticated scientific instruments at their disposal can’t tell us what the weather will be two days from now. This usually leads me into a rant about global warming but I’ll leave it to economist Thomas Sowell, who said, “Would you bet your paycheck on a weather forecast for tomorrow? If not, then why should this country bet billions on global warming predictions that have even less foundation?” But I digress.
Investors should draw on past experience and history, and learn from it and try and create a plan based on current similarities. Use history as a guide and plan accordingly. With a little perspective you can avoid mistakes many investors make in both rising and falling markets.
Investors often think that nothing needs to be done to their portfolios when markets are rising and their portfolio value is rising as well. Unfortunately, even in rising markets, mistakes can be made. It’s important to remember that markets don’t always move up, and that they can drop as well.
For younger investors, market gyrations are less problematic. For retirees or those fast approaching retirement, the need to preserve capital becomes much more important. Chances are that once you hit retirement, what you managed to save is what you will have to live off of (in addition to pension monies and Bituah Leumi/ Social Security), and having a portfolio that is overly aggressive can blow up in your face if the market gets slammed.
Don’t forget about your asset allocation. The recent market surge has been driven by certain segments of the market such as tech stocks. Make sure that your portfolio stays in balance. For example if you had 10% exposure to technology and now after the run-up you have 20% exposure, you may need to pare back on your holding.
When the market is strong, some investors lose sight of their long-term goals and focus just on how much they’re making in the short run. But if you start focusing on the short term, you might take on more risk than you should.
Be patient. It helps to remember the most important rule of investing for retirement: You’re investing for the long term, not to get rich tomorrow.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates. The writer is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional in the United States and Israel. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il