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Stay the Course Thumbnail

Stay the Course

By: Andrew J. Willms


The late Jack Bogle was the founder of Vanguard Group and world renowned as one of the most influential investors of all time.  He introduced the first index mutual fund for investors and was the first to champion low-cost investing for individual investors. 

Mr. Bogle was also renowned for the sage advice he freely shared with anyone willing to listen.  When economic or geopolitical turmoil sent the markets into a tailspin, Mr. Bogle would frequently encourage investors to “stay the course.”

Some have interpreted Mr. Bogle’s counsel as meaning that you should do nothing when the market or economy is in turmoil.  I disagree with that interpretation.

Rather, I believe that investors need to chart a course for how to handle extraordinary market and economic conditions (both good and bad) and then stick to that course when the poop hits the fan. 

The course we’ve charted at The Milwaukee Company includes (i) making tactical adjustments to the asset allocations in response to market and economic data, and (ii) rebalancing portfolios when they drift too far from their models due to changes in the values of the ETF holdings. 

The recent market volatility has raised the potential for portfolio adjustments due to both of these factors.  But because strategic asset allocation (as represented by a model portfolio) has a greater influence on a strategy’s total return than tactical adjustments made to it, it’s important to make sure that tactical adjustments are constrained.  

As I have written many times, market timing is a loser’s game, unless it is done on a measured basis, and is driven by economic or market data, rather than ad hoc decisions.  It’s also very important that tactical adjustments are made in accordance with rules-based strategies that can be tested using both historical and simulated data.  

Many on Wall Street disagree with this approach.  Rather, if you watch CNBC, you are likely to hear someone shouting that you should “Buy! Buy! Buy!” or “Sell! Sell! Sell!”.  While histrionics such as this may be good for television ratings, the odds are high that it will be bad for your portfolio.

Market turmoil often encourages investors to dump stocks.  But doing so now would mean you are selling shares at prices that are approximately ten percent below their recent highs (as of this writing).  Moreover, in order for that decision to be profitable, you would have to jump back into the markets when things are worse than when you sold.  For many, that’s a leap of faith that is difficult to take.

Noted author and columnist Johnathan Clements had this to say in a recent blog post:

In the end, what stock market investors care about is company earnings.  Ask yourself: What does Russia’s invasion of Ukraine mean for corporate profitability?  Very little, I suspect.

Enough said.