Navigating Financial Storms with Skilled Fund Managers

Have you found an active fund manager who can weather the financial storm? Yes, I have encountered a few skilled fund managers who focus on valuations and make careful bets. Contrary to the current trend of increasing assets under management during rising markets, these managers adhere to a more disciplined approach.

Core Values of a Good Fund Manager

A good fund manager is often someone who can resist the temptation to buy when market valuations reach record highs. Record high valuations do not necessarily indicate a bad stock, but they do highlight the importance of earnings growth. For instance, if a stock trades at 80 times its earnings, it demands an intact record of earnings growth. However, this is often not the case; companies that underperform for a couple of quarters usually face severe market punishment.

Skilled active fund managers recognize this risk and are prepared to endure periods of underperformance, typically lasting 12 to 18 months. They wait for a return to market sanity before making investments. By maintaining this perspective, they can better withstand any financial storm, ensuring that they do not lose the money they've accumulated.

Examples of Seasoning Portfolios

There are mutual fund managers who exemplify the art of seasoning or churning portfolios based on market conditions. During financial storms or major market crises, they frequently adjust their portfolios to safeguard against adverse market movements. Additionally, many retail investors engage in similar activities to protect their investments.

Understanding the Current Market

The current market is experiencing a tailwind that is blowing company valuations to ever higher record-setting levels. This tailwind can lead to overvaluation and increased risk. To succeed in the stock market, it is essential to remove as many delusions as possible and view the situation clearly and without emotion.

Market valuations that have been stretched over time can create significant challenges for investors. As a result, it's prudent to assess whether you are making life-changing decisions with your money based on clear and rational analysis rather than emotions.

Bettering Your Financial Latitude

To ensure long-term success, it's important to follow the 'boring but incredibly important first rule of investing: donu2019t lose the money!' This means being mindful of risk and not making rash decisions. If you need to pause and reassess your investment strategy, taking a break for 2 to 3 years with no commissions on Robinhood trades can be a wise decision.

By following these guidelines and staying vigilant, you can better navigate the unpredictable nature of the financial markets and emerge stronger on the other side.

Conclusion

Are you someone who invests based on past returns or someone who wants to make rational, long-term decisions? The former may lead to overexposure to risky assets. The latter ensures that you can weather any financial storm without losing the money you've worked so hard to accumulate.