KIM: Review timeless truths before next market ‘crisis’

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KimI’ve warned of the danger to your long-term financial health of heeding the advice of “talking heads,” particularly when stocks hit a rough patch. Ben Carlson of Ritholtz Wealth Management and the “A Wealth of Common Sense” blog wrote “36 Obvious Investment Truths” after he saw a headline on CNBC warning of the need to protect yourself from a 5 percent pullback in stocks.

Carlson’s immediate response was, “If you’re worried about protecting against 5 percent corrections, you shouldn’t be invested in stocks in the first place.” I agree.

According to Crandall Pierce & Co., since 1900, 5 percent corrections have occurred about three times a year and 10 percent corrections about once a year, so corrections are a normal part of the stock landscape and nothing to fear. Investors haven’t endured even a 5 percent correction since early 2016, so we’re long overdue.

Thus, a correction could occur at any time, for any reason or no reason at all. You can be sure the “Chicken Littles” will do their best to scare the bejesus out of you, so it’s best to review Carlson’s “obvious truths” (I had space for only 21) in times of relative calm:

1. If you need to spend your money in a relatively short period of time, it doesn’t belong in the stock market.

2. If you want to earn higher returns, you’re going to have to take more risk.

3. If you want more stability, you’re going to have to accept lower returns.

4. Any investment strategy with high expected returns should come with the expectation of losses.

5. There’s no such thing as a perfect portfolio, asset allocation or investment strategy.

6. No investor is right all the time.

7. No investment strategy can outperform at all times.

8. Almost any investor can outperform for a short period of time.

9. “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.

10. If you invest in index funds, you cannot outperform the market.

11. If you invest in active funds, there’s a high probability you will underperform index funds.

12. If you are a buy-and-hold investor, you will take part in all of the gains but you also take part in all of the losses.

13. For buy and hold to truly work, you have to do both when markets are falling.

14. Outperforming the market is hard (but that doesn’t mean it’s impossible).

15. There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.

16. Compound interest is amazing, but it takes a really long time to work.

17. Reasonable investment advice doesn’t really change all that much, but most of the time people don’t want to hear reasonable investment advice.

18. The best investment process is the one that fits your personality enough to allow you to see it through any market environment.

19. Successful investing is more about behavior and temperament than IQ or education.

20. The market doesn’t care how you feel about a stock or what price you paid for it.

21. The market doesn’t owe you high returns just because you need them.•


Kim is the chief operating officer and chief compliance officer for Kirr Marbach & Co. LLC. He can be reached at (812) 376-9444 or

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