This Week’s Blog Is Written By Scott D. Heins, CFP®, IAG Chief Investment Officer
January 22, 2020

There are only two things on stock traders’ minds these days – buy and buy.

• The S&P 500 Index – a broad index including 500 large U.S. companies – has set record highs on 50% of trading days so far in 2020.
• Traders are now paying more for $1 of anticipated future corporate earnings than at any point in the last 5 years. (Source: JPMorgan)

By most measures, stock prices for large cap U.S. companies are richly valued.

However, just because traders have said buy-buy to higher stock prices does not mean a correction is imminent. In many cases traders continue to drive stock prices higher long after reasonable valuations have been left behind.

There is simply no limit on time or market height before traders’ common sense is restored and their buy-buy attitude goes bye-bye. While we cannot put that date on our calendars, we know it exists in the unforeseeable future which can be unsettling.

Right now the emotional side of my decision-making is a mess. I have half an inclination to add more to my stock allocation to ride the momentum upward, but another half inclination to sell out of my stock allocation because the rally has stretched beyond my comfort zone.

Thankfully, the logical side of my decision-making is always there to remind me that my odds of successfully timing the stock market correctly twice (when to sell and then when to buy back in) are much lower than 50% and, thus, not in my favor.

Instead, logic must focus on what I can control to some degree: how much investment risk I take.

Logic tells me that if my investment risk budget is set correctly for my personal financial plan and I am faithful in rebalancing to that risk budget in up times and down times, then I have done everything within my power to keep the investment portion of my financial plan on course.

Of course, even the best asset allocation and disciplined rebalancing in themselves do not guarantee success. Sometimes short-term market conditions make long-term investing strategies look foolish.

When the day comes for traders to say bye-bye to buy-buy and hello to sell-o, my emotions will swing 180 degrees. Thankfully my boring logic (and my financial plan) will not.

Quote of the week: Warren Buffet: “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.