Central Markets by Robert Lloyd, CFA

The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the  information cannot be guaranteed. All opinions and outlooks are subject to change.

  • Robert Lloyd, CFA

Did you take ownership at the top?

Did you take ownership at the top?

Behavioral finance focuses on the many foibles we have as human beings and how they affect our actions while managing portfolios. One of the key behavioral traps is called the "anchoring" bias. This particular bias occurs when an investor focuses on the market returning to a certain price level.

At this point in the market cycle, those suffering from the anchoring bias are wondering "When will the market go back to its highs", or "When will my fund recover its losses?" This line of thinking can be paralyzing because it prevents you from taking action to either 1) decrease risk, or 2) increase risk in a timely fashion. It doesn't matter if you are a hedge fund manager or a schoolteacher, the crushing feeling of losing money affects your ability to think clearly and act correctly.

Don't take ownership of the market top. Avoid looking at your portfolio high-water mark. Nobody sells the top and nobody buys the bottom. Rather, think about calibrating your risk around your core long-term portfolio allocation. It is not too late to reduce risk as we go through the current recession and bear market. For example, the S&P 500 today is still well above the 2020 pre-pandemic highs. Ignoring the recent market highs, what are the odds that we trade below that important level? Are things better or worse than in early 2020?

Just as there were opportunities to gracefully reduce risk in late 2021, there will be additional opportunities to shrewdly add risk in 2023. Mentally prepare yourself and don't fall prey to the anchoring bias.

Some helpful behavioral reminders for bear markets:

1. Don't take ownership at the top.

2. Don't fight the Fed.

3. You can't control the markets, but you can control your behavior.

Robert Lloyd, CFA®

Chief Investment Officer

Lloyds Intrepid Wealth Management

Lloyds Intrepid LLC is doing business as Lloyds Intrepid Wealth Management. Lloyds Intrepid LLC offers investment advisory services in the State of Texas where registered and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Lloyds Intrepid LLC and its advisers do not provide legal, tax or accounting advice. Lloyds Intrepid LLC formulates retirement plans, investment strategies, portfolio construction and investment due diligence for clients with signed investment advisory agreements with us. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All opinions and outlooks are subject to change.

© 2022 Lloyds Intrepid LLC

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