Being Early is Not Wrong

There is a saying in the investment world that "being early is wrong". I'm not saying you don't need to adjust, because of course you need to "adapt". 🙂 What I'm referring to specifically is the immediate gratification mentality our society is so stricken by and judging something to be wrong even just because it hasn't happened yet.

Last week, all of the investment institutions started backtracking on the consensus recession call at the beginning of the year and raising year end SP500 targets.

It's not because the macro situation has improved, but technicals have certainly been strong. (No need to list the multitude of factors here) But they are not necessarily "wrong" because the recession didn't happen in 1H 2023. Imo, it was delayed.

Throughout history, we know markets trade in cycles and we have "reset" periods from time to time. I define a "reset" period of a 40+% drawdown in the broad market. Each reset period has it's own unique causes but things like investor mania are all too common.

And when you have a "reset" period, you lose a lot of your previous gains, typically YEARS of gains and large amounts of them.

So if conditions are present for a "reset", it would make sense to prepare for it even if you are early because minimizing a large drawdown can go a long way in helping maximize your long term return. And if the reset doesn't happen when you think, it doesn't mean it won't.

You may say, "What if the reset doesn't happen?" or "What if it's not that bad?" and those are reasonable questions. All I'm saying is that more and more of people's life savings are getting pushed into the market, so I think it's prudent and responsible to consider risk management BEFORE a reset happens, even if it means you're "early". (most people only do it after it's too late)