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Proper Expectations!!!


There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win the presidential election?

How will the crisis in…well you name it affect the equity markets?

Will inflation take hold?

Will interest rates rise?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

By developing a prudent investment process and sticking to it. You will realize a successful investment experience. This means at times not performing well compared to others.

As an example in the mid-1990s the U.S. Large cap growth stocks, especially tech stocks, were posting outstanding returns year after year. Investors were pouring money into the ‘can’t miss’ tech stocks. Warren Buffet, on the other hand was sticking to his process. His returns fell far behind the tech stocks.

In 1999 many growth mutual funds were showing stellar performance of 80% 90% and even 200%. Mr. Buffet on the other hand showed a negative 15%, yes a loss. It was said his time was over. He had lost his touch with reality. Time had passed him by. The tech industry was the new paradigm.

Then the tech bubble burst devastating investors. These investors had concentrated their money into one hot asset class, tech stocks. They lacked diversification. They were looking for the next ‘killing’ and lost.

Mr. Buffet on the other hand flourished. His time was not over. Because he had a process he believed in and he remained disciplined, he succeeded, long term.

Before you say ‘why not just invest with Warren Buffet? On its own, his fund is very volatile. More volatile than most investors can stand.

The point is a prudent process and discipline will lead to successful long term results.

Proper expectations are the key to investing with Peace of Mind.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight.

If you expect the impossible you will be frustrated, unhappy and fearful.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get closer to and into retirement.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

"DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all." -George Washington

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Comment   |  2 years ago from Green Bay, WI