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Forced To Choose - Part 2

Saturday, April 4, 2015

– by Sheila & Rich Jamison 

We discussed the “being forced to choose” BFO (Blinding Flash of the Obvious) in the last InSights (found here). We focused on

  • Being put into a box that makes us choose sides on an issue we didn’t even know we had, and
  • Doing so with incomplete, inaccurate and/or contradictory information.

Our point was that this is a formula that causes us pain – the “what if I’m wrong?” worry. We emphasized that having a process in place can often sidestep this whole thing.

Common Comments

Among the most frequent feedback was, “I never looked at it that way” and “That doesn’t really happen often, does it?”

To the first thought we remind you that the sudden awareness of something that has been right in front of us is the essence of a BFO. Once we notice it, it is obvious. Before then, not-so-much. The fact we neverlooked at that way before is indicative of the fact we didn’t see it before.

As to the second item, if we haven’t been looking for it, we probably didn’t see it. It will be readily apparent after the BFO strikes. In fact, it will be hard for anyone to slip it past you!

A Familiar Example

You could compare it to shopping around for a new car. If you’re attracted to explore a make and model that you have not owned before, you will probably be unfamiliar with how prevalent that car is. After you’ve bought it, it seems as though you see one of them almost everywhere! Funny how many will even be in the color you’ve chosen too.*

So what makes us delve a little more deeply into being put into that box? Because writing about it made its detection impossible to miss. More important, noticing its prevalence makes it easier to deal with.

As we closed the first quarter last Tuesday, the pundits turned to April. There was the usual noise about what happens next hitting the ‘airwaves’ – much of it starting on Monday even before Monday’s its strong advance was in the record books. Here are the kernels of two consecutive articles for your consideration in that BFO light.

Article #1

Sell any equities bought over the past year, hold the proceeds as cash and take a holiday from the market for six months. A likely increase in U.S. interest rates and slower expansion in the U.S. and Chinese economies will intensify market volatility and hurt investors holding stocks, most of which are over-valued.

Article #2

April delivers “Flowers” instead of “Showers” for investors. April has been historically strong for the major market indices and the strongest of the year for the Dow Jones Industrial Average (DJIA). Since 1950,April has produced the DJIA’s highest average monthly return at over 2%. Its April returns have been positive 66% of the time (43 of the last 65 Aprils).

Lest you think the DJIA is an outlier, over the last decade (April 2005 – April 2014) the DJIA averaged a 2.49% for Aprils vs. 0.49% for all months; the S&P 500 Index ran at 2.37% for Aprils vs an all-month 0.52%; and NASDAQ returned 2.22% in April vs. 0.79% in all months. We state up front that history guarantees nothing for the future but add that you would have done well to have been invested in April or hurt if you weren’t.

Into the Box

So, you’re just sliding calmly into the second quarter when you encounter the two articles above. Suddenly, you’re back into that box. Didn’t know you had a “problem” to solve until you read them. Now you do. Is the market going to hell in a handbasket or is it going to be getting even stronger than it has been? Moreover, what should you do about it? Sell everything or put in more?

Which One Is Right?

The two articles – which are merely the first two articles we saw on entering Q2 – stand in opposition to each other. They take mutually exclusive viewpoints. How do we choose which one it right? And how can they be opposites? Is one of them lying to us?

Good or Evil?

As noted in our video intro, we don’t mean either author is good or is evil. Each is presents facts (what’s happening in the world and what’s happened in previous Aprils) and uses that information to (subjectively) predict what will likely happen next in the markets.

That seems to be the position of almost all the forecasters we see and hear. (Albeit the few exceptions of newsletters that focus more on subscription sales than truth or reality.) Nobody is knowingly trying to be evil. To the contrary, most are hoping to do good. But they all suffer from the same weakness: nobody knows what the future brings. Nobody can know  what will happen.

But Their Result

People with good intentions who tell us “go right” or “go left” can still cause us pain. They can throw us into that box of “I have to wrestle with this and decide” thing; often when agonizing over a decision is unnecessary. Just spotting that “get into the box” thing is one way to stay out of it!

Advantage Objectivity

Developing and refining our investment process has shown us the value of using objective criteria.** Measure what the market is doing and make changes only when those measurements tell us to do so. There is no predicting of what will happen. Use what is happening instead. Act on that; not on guessing what will come next. This one works even if you slip into the box now and then when you aren’t on guard against it.

Avoid agonizing over decisions – especially those that don’t warrant conscious attention to begin with. Don’t have to guess which contradictory information is “right.” Those decisions bring on the “what if I’m wrong?” pain almost instantly. Let the data make the decisions for you.

Want to make this concept work harder for you? Give us a call to talk about it.

* There is a good reason this happens. Various psychological (e.g., Selective Perception) and physiological (e.g., switching on the Reticular Activating System) concepts explain this. Bottom line, it’s not just you. We all do this.

**Refining our process led us to a Relative Strength-based Tactical Rotation as our method of choice.

Sources:
Economist: Sell Your Stocks and Take Six Months Off. Take a holiday from the market. Matthew Martin. Bloomberg.com. March 31, 2015.
Were You Aware …? Daily Equity & Market Analysis. Dorseywright.com. March 30, 2012.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of the date of publication and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities whenever mentioned are for illustrative purposes only and may not be relied upon as investment advice.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.
The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.
The S&P 500® is a market-capitalization-weighted index of common stocks.
Past performance is no guarantee of future results.

© 2015 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information presented. Commercial use is prohibited.