The current bull market is the second-longest on record. While hoping for the best, but planning the worst, investors want to know what can be done to protect gains when the market changes?

Protecting Your Gains in a Market Decline

1. While the current bull market has become the second-longest in history, there is no statistical evidence that a long bull market is more likely to end than a shorter one.
2. Expansions do not die of old age and the slow “plow horse” recovery has resulted in a fairly valued, but not overvalued, US market.
3. We do not own the market. Our managers own what we believe are mispriced securities that represent opportunities for growth with reasonable risk.
4. We do believe that many large US companies and especially the large dividend-paying US companies are a little ahead of themselves and may need a short-term rest.
5. Using the same logic implied by the question, “can long-term performance trends continue forever?”, but applied in reverse, small stocks (green) and foreign stocks (gold) are probably ready for a period of outperformance.

The Bottom line

Believing that we can know the onset, duration, or magnitude of a market cycle of an asset class is a mistake – these things cannot be known.  Attempting to time the markets based on the belief that we can predict trends in advance is a recipe for disaster.  Despite this principle, we do make small bets by over and under allocating asset classes based on their relative value. Hence our over-weighted positions in small, mid-sized, and foreign companies, and underweight to bonds and large US companies.

Our guidance is to remain invested and globally diversified and expect that markets will fluctuate – because they certainly will.

As always, should you have any questions on this topic, please contact us.