Wait, Blackrock Is Saying What?

With no fewer than three potential big, bad events (and a fourth – the FOMC meeting – on tap for next week), traders appear to be in wait-and-see mode at the present time. And since I do not believe in making predictions about what the news will be – or more importantly how Ms. Market is going to react to said news – I would like to spend our time this morning talking about the subject of managing risk in the stock market.

Long-time readers of my oftentimes meandering morning market missive know that I am a risk manager. I always have been. I always will be. My career was shaped in the early 1980’s by the likes the late Marty Zweig, Ned Davis, and Stan Weinstein. They taught me early on that one of the best ways to make money in the long run was to avoid losing a lot of money in the short-run. And while my approach has shifted over the years (I’m much more big-picture/long-term oriented these days) my overriding objective of investing hasn’t changed. In short, I strive to stay in tune with what the market is doing and to lose the least amount possible when the bears are in control on Wall Street.

To be sure, this hasn’t always been a popular approach. In the late 1990’s for example, the idea of managing risk was almost laughable as the secular bull was raging, 10-year returns in the high-teens were normal, and the mutual fund industry had convinced investors that the key to success was to simply buy and hold. “Time, not timing” was the battle cry and back then, investors and advisors alike were taught to be “long-term” in their approach.

However, what I’ve learned over my career is that advisors and clients alike tend to be long-term – as long as they are making money!

The bottom line is that after two of the most brutal bear markets in history occurred within a nine-year period, a great many investors have decided to rethink their approach. Gone is the notion that investors should just put their money in a mutual fund and leave it there – forever. Gone is the idea that managing risk is a fool’s game. And gone is the concept of just riding things out when the bears come to call at the corner of Broad and Wall.