Caution: Do Not Chase Investment Strategies
Understand the nature of your investment strategy and let it work.
Strategy chasing is similar to the behavior of an impatient driver in bumper-to-bumper traffic. We all know them – the driver who continuously swerves back and forth between two lanes in hopes of arriving at their destination that much quicker. But does it work? How often have you seen this impatient driver switch lanes to ‘get ahead’, then later pass him in your original lane further down the traffic? Not only is this impatient shuffling wasted energy, but one could also argue there is added risk to this continuous switching between lanes. Much like merging between lanes to perfectly time traffic, attempting to time investments in and out of different strategies is a daunting task that can add serious risk to your portfolio.
Research shows that on average, individual investors have historically bought high and sold low.
While obviously due to poor timing of investment decisions, the tendency to buy high and sell low is largely a product of fear. After watching a specific investment underperform, many investors will be quick to rid their portfolio of the short-term “losers,” and use the remaining cash to reinvest in the short-term “winners” of late. It may seem a plausible strategy on the surface, but there is overwhelming research to the contrary, since selling low (losers) to buy high (winners) will always be a negative sum transaction. Factor in the transactional costs of buying and selling out of positions, and it is clear why strategy chasing will deplete your holdings.
As with drivers, all investors can benefit from an increased awareness in personal discipline and patience. At our firm, we solely believe in systematic investing based on empirical research and hard data. We construct strategies with pre-determined entry and exit points to remove the plethora of emotional biases that drag down performance. At Kattan Ferretti Financial, we take the time to understand your needs in order to position a portfolio for the long-term, and our experienced investment team remains vigilant to changing market conditions so you don’t have to. Our actively managed portfolios are built using decades of data that encompasses vastly different economic cycles giving us the confidence to override fear and emotion to unbiasedly execute. In practice, our methods of systematic investing have proven to be a successful investment philosophy, and we take enormous pride in keeping a disciplined, level-head behind the wheel of your portfolio. Drive Safely.