Lessons Learned from the Market

By David Chazin

“Experience is the name everyone gives to their mistakes.” — Oscar Wilde

Over the last few years and especially with the unprecedented volatility of the last few months, Chevron employees have been given quite the opportunity to gain some “experience.” It’s often said is that we should, “learn from our mistakes,” so here’s a list of 12 lessons that may help you and your Chevron colleagues in planning your market strategies in the future:

1. There is no such thing as “short-term investing.” The term “short-term investing” is an oxymoron. Put bluntly, a short-term financial focus is a speculation, not investing. Investing is a fundamental commitment of your capital to the pursuit of the greater goals in your life – a dignified and independent post- CVX retirement, the education of your children or grandchildren, or a legacy for your heirs or your community.

2. Markets go through cycles. We’ve seen this over and over again – bull markets are followed by bear markets, and vice-versa. Effective investing during market cycles requires decisions that may be uncomfortable. When markets are most optimistic and exuberant, we should be cautious and ask “why?” When they are most pessimistic, we should see an opportunity for the long-term investor. At all times, we should have a written plan as a discipline to guide our decisions and help us through the tough times. Sir John Templeton, one of the founders of modern international investing, believes that the real buying opportunities are at the time of maximum pessimism – “when the blood is in the streets.”

3. Years of high returns can be completely reversed by one bad year. Think about 2008 – that collapse wiped out most of the gains Chevron employees had made since 2002. Past performance is not indicative of future results, and that’s why you shouldn’t use short-term criteria to judge long-term results. That can lead you to unknowingly creating a very high-risk portfolio. Ultimately, consistency is more important than an occasional “home run.”

4. Most dollars flow into high-performing investments AFTER the performance has occurred. The single most abused tactic is for Chevron employees (or any investor) to chase last year’s performance. Years of research show that the best performers change from year to year. A disciplined investment plan and investment selection criteria are critical if you want to avoid making this mistake.

5. Market indexes can tell a distorted story. The performance of an unmanaged index, such as the Dow or S&P 500 is not indicative of the performance of any particular investment. The success or failure of your Chevron or any other investment accounts should only be measured by whether or not it is meeting your long-term goals over a full market cycle. If it is, it’s succeeding. If it is not, it may be failing.

6. Valuation still matters. If you begin to believe “it’s different this time,” you are wrong – it’s not. When valuations are far above their historic levels, there is good reason to be concerned. Good companies may remain good companies, but they may not continue to be good stocks. When this basic principle of investing is ignored, you will eventually pay the price.

7. There is always a risk. If you don’t see or understand the risk, keep looking. It’s there. Once you find it and understand it, it may be acceptable. But until you identify the risks, they are unacceptable.

8. A well-balanced portfolio should be diversified among the major asset classes. Cash. Fixed Income. Large and small companies. Growth and value. Domestic and international. The only guarantee is that some of these areas will periodically disappoint you, but you never know which ones or when. Significant differences exist in risk among investment asset classes. Be aware that some investments have principal and yield that will fluctuate, some with extreme volatility. You should stick to your plan and have an allocation that includes several asset, classes.

9. Asset allocation is a diversification strategy that helps manage risk. It cannot offer a guarantee against market losses, but it offers you an investment risk management tool. Concentration in a single sector or company – no matter how attractive it may appear, no matter how compelling the arguments – is still speculation.

10. The traditional rules of investing are still true. While they can be adjusted periodically to fit some of the finer points of the current economic environment, you should never abandon the core principles of diversification, sound values, patience, following a sound plan and maintaining a long-term perspective. Know the rules and know when you are breaking them. Keep in mind your long-term investment objectives and risk tolerance.

11. Raw information is not knowledge – and just knowing the facts won’t necessarily make you any wiser. The financial media in all of its forms – television, radio, newspapers, magazines and the Internet – survives on stimulating emotion and fostering the belief that “every second counts,” that the ability to react and trade instantly is an improvement over patience, discipline and a sound investment plan. Warren Buffett, the well-known value investor, believes that the daily movements in the stock market don’t reflect the true value of companies, but rather an emotional temperature of investors.

12. Market timing doesn’t work. Moving into and out of markets based on any anticipated changes in price as opposed to fundamental changes in value is speculation – not investing. Peter Lynch, the former manager of The Fidelity Magellan® Fund believes, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

This isn’t to say that tactical active management strategies don’t work. This is to point out that many Chevron employees take an investment approach to their Chevron accounts that ultimately undermines their goals.

We’d be happy to sit down with you to discuss how well your investment strategy makes sense given the volatile market conditions we’re currently facing. Because we work with many Chevron executives, managers, employees and retirees, we’re very knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of our Chevron clients and you can ask them how working with an advisor has helped them.

To learn more about what Insight Wealth Strategies can do for you or your colleagues in San Ramon, Point Richmond, or Houston, TX, please call us at (800) 318-7848, email us at [email protected], or fill out the request information form.

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Lessons Learned from the Market

By David Chazin