"Kee" Points with Jim Kee, Ph.D.

September 17, 2019

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  • “Key Points” for Volatile Times 

 “Key Points” for Volatile Times 

 

Navigating the global investment landscape can be challenging at times because there is always so much going on. Trade wars, debt (sovereign and private) concerns, “populist” movements, geopolitical events, central bank actions, etc., all converge to create a bewildering environment for investors. But remembering a few very simple rules can help keep anyone on track. Here are some of my favorite insights for avoiding mistakes and ensuring success:


1) Modern finance in a nutshell. Don’t talk about returns without talking about risk in the same sentenceI often hear professionals and amateurs (friends) talk about the returns of a particular investment with little mention of the risks that were born. Typically, however, truly outsized returns come with outsized risk. But there is a huge silver lining here. If you combine risky assets that have similar long-term expected returns but whose prices – in the short term – move in opposite directions (or just differently), the combined portfolio will have less risk, that is, less up and down movement, than either asset separately. That is what diversification is all about, and it forms the bedrock of our investment philosophy.


2) Don’t react to volatility. Time and again, peer-reviewed research as well as proprietary studies like Dalbar’s annual Quantitative Analysis of Investor Behavior show that individual investors tend to earn about half of what the market earns, largely because they sell during plunges and buy during rebounds. Volatile periods tend to contain the handful of good days every year that account for a good portion of an investor’s long-term returns. The absolute best investment advice I could give to anybody would be: don’t react (i.e. buy or sell) to market volatility!


3) Your horizon is not the media’s horizon. You and the media have entirely different goals: yours is to have a well-diversified investment plan and stick with it; theirs is to have you obsessing about every data release, Trump tweet, and international event. If you own equities your horizon is 5, 10, 15 years and beyond, not next week’s Fed meeting.


A Fond Farewell!

As you may have heard by now, this will be my last Kee Points, as I will be retiring from South Texas Money Management to pursue academic interests. College teaching is something I have been wanting to get back to for some time. With my youngest child starting college, and the firm in such capable hands, this feels like the right time to make my transition back into teaching. I would like to take this opportunity to thank all Kee Points readers for their kind comments and feedback over the years. Going forward, I am extremely confident that CAPTRUST will fill this gap for you and then some! I wish you all the best and thank you for your support over the years.