Enjoy -- and hold onto -- what the market provides

There's a well know adage in the investment world of "don't fight the Fed". This pithy saying implies interest rates and central bank interest rate policy are the dominant influences on shorter term stock and bond market trends, and when attempting to build an investment strategy its not wise to surmise to know more than the Fed does about the factors driving its own decision making.

I strive to build upon this adage, by further applying a version of it to the stock market. While it's easier said than done, I endeavor to invest for the stock market we have been given, not for the stock market I think we should have, or even wish we had. Like many investors, I spent too much time in my earlier days thinking the market was wrong, and I was smarter and knew what it "should" be doing instead of how it actually was acting. This "I'm smarter than the market" perspective can be very expensive over time, and this lesson is mostly only learned the hard way.

With experience I have come to value a certain wisdom inherent in markets. Over the short term can markets be insane? Absolutely. Are markets mostly unpredictable? No doubt. Does the stock market accurately reflect economic reality? Only occasionally, so basically "no". Markets however, the stock market in particular, are comprised of millions upon millions of simultaneous individual decisions, all being made by investors with competing, sometimes misaligned interests, clouded by the noise from computer algorithms, all using incomplete information to form biases and strategies to implement disparate agendas.

Somehow through all this racket a certain "wisdom of the collective" emerges, providing us normal humans with access to the greatest wealth creation mechanism ever conceived. Yes, there is a certain wisdom and beauty to this madness, and I for one greatly appreciate it. But it is, however, difficult and dangerous. Some market periods are more dangerous than others. It's quite possible this is one of them.

Now if you're rolling your eyes thinking "Dangerous? Marc, you should have seen my December investment statement, I'm making money hand over fist", the answer is "I know". Over the past 12 weeks or so, since late October, the gains across the board in all major stock market indexes have been nothing short of spectacular. Go a little further and look under the rug at some of the most widely held and traded stocks in these indexes and it gets even better. There are widely held stocks, provoked by the opaque opportunity of artificial intelligence, up 30%, 40% and more in just months. It's been nothing short of easy to throw money in the stock market over the past few months and make money. The returns being generated are actually starting to change the way I think and feel about investing, and maybe even my own personal planning. And this is what scares me.

What is motivating investors to drive such gains? The loudest voices seem to be eagerly anticipating interest rates to go down soon, the idea of cheaper money tantalizing investors into stocks. But why would interest rates go down soon? Well, the conventional wisdom is the Fed would drop rates to counter weaker economic conditions brought on by the currently high interest rates, which could maybe result in rising unemployment, slower economic growth, maybe even a recession. Wait a minute though, would a recession really be a positive for stock prices? Aren't we told stock prices are supposed to reflect corporate profits, how could corporate profits get stronger in a weaker economy? It's all so confusing.

So, what are we supposed to do with this confusing stock market that is making us so happy? I would say the one thing I want to do, is actually also the one thing I can't allow myself to do. Unfortunately, this one thing is to sit back and enjoy it. In my opinion, certain market conditions actually prompt both the buying and selling of stocks. This is one of them. Am I advocating day trading? Absolutely not, it's a difficult and losing proposition for most. This is, however, a time when markets are providing gains and as another axiom says "new highs, beget new highs". It is possible to deploy money into markets during a period of market highs and make money, but the key in my experience is gains need to be harvested by regular and consistent selling or rebalancing. In short, both buying and selling.

As this stock market continues to make me happy, I will work really hard to remember to not confuse a raging bull market for my own personal brilliance. Eventually the music always stops and markets fall, and the smartest investors are the ones who are able to hold onto to what the market provided on the way up.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.