Being Old and Young

Chatting with a friend the other day, I mentioned how at 61, I've seen a few cycles. We got chatting about life in general and I mentioned it was strange because at 61, I have a fair amount of experience in markets. but I have no experience at being 61. So whatever age we are, we are generally flying blind. 

However, one benefit of seeing a few cycles is you get to understand how things repeat. While every cycle is a little different in say, length, there are definitely red flags that you see in each cycle. These flags demonstrate how investors behave especially around the top or the bottom. 

The perennial problem for most investors is "missing the top" or the bottom.

No one, and I mean no one gets it exactly right in selling or buying. That may seem obvious, but I see constant chatter about how if you sell now, you'll miss the future returns. I can tell you that these so called future returns usually evaporate once you take into account the full cycle.

the problem is we can only see the top or bottom in the rear view mirror. So this is why asset allocation is one of the three major principles of investing. 

We often forget investing is done over a long period and so your returns won't be a disaster because you sold a little early. In fact, they are likely to be better than most since those who buy and hold see the profits disappear when the markets starts to fall.    

We all like to think we are individuals. But the truth is we are usually much more comfortable being part of the herd. If you can see that people are patterns, you can take advantage of this groupthink by adopting a contrarian position (as Buffett says be fearful when others are greedy........) and see how groups of investors are fairly predictable.  

So while I can't tell you much about being 612, I can probably give you some tips about being 15, 25, 45 or any other age up to 61. 

I would start by saying, you won't nail the top or the bottom perfectly, but I guarantee you will improve your overall returns of the long term if you pay attention to market cycles and investors behaviour.

And at the moment, they are showing all the hallmarks of becoming irrational.