Be careful chasing market trends

Beware looking for market trends too much in your pursuit of your investment objectives. While you don’t want to ignore market trends, you have to be careful not to get too caught up chasing them.

Consider in December when the Federal Reserve announced they would probably have four rate hikes this year and four next year. Since then, everyone has been worried about rising interest rates and rates have actually dropped as the market conditions have gotten more volatile. Many expect rates – and I do personally – think rates are going to drop to all-time lows. I think the 10-year Treasury, which then affects what you pay when you buy a car, if you borrow money or to borrow money to buy a house will actually go down lower than they’ve been before they do go back up.

You try to chase that trend and then rates have done the opposite. We don’t want to bury our head in the sand. We know the long-term view is the traditional bond markets are really going to struggle because when interest rates go up, bond values go down. But in the short-term anything can happen. Fundamentals in the long-term typically win out. You have to be careful with the market trends.

Chasing market trends is like chasing returns. It’s like driving down the interstate and changing lanes of traffic. If I’m driving down the interstate in West Knoxville during rush hour, it’s stop and go. I’m in the middle lane and I look to the left lane and it is steadily moving. What do you do? I get over. Almost everyone I talk to says they go over into the left-hand lane. And then what happens to the left-hand lane? That lane stops and the lane you just left does what? It starts moving better. It seems like wherever you go, you’re chasing these lanes of traffic and then it bogs down. That’s what happens when we chase returns. We typically get in toward the tail end of their rise, or we sell things at the tail end of their loss or losing streak.

For instance, what’s the best thing to do with an energy portfolio right now? Should you be selling, or would you be looking at potential opportunities to buy? It’s down. You don’t want to be selling right now. Will oil be $32 a barrel in five years? I don’t know, but I doubt it.

So don’t chase returns. Be careful chasing market trends. Should they have some impact in how we invest? Should we be strategic? Yes, but we shouldn’t be chasing returns, especially short-term returns, because in the end, chasing returns in the short-term has proven with pretty much any investor over the long-haul to be folly.