Biggest Investing Errors and MarketCycle’s Fix

MarketCycle Wealth Management’s fix for

Recent research from Natixis Global Survey of Financial Professionals identified the 8 biggest and costliest errors that investors make.  We’ll start with panic selling:

PANIC SELLING:  Investors universally sell when they are most afraid.  They are most afraid when the market is falling.  Markets move up slowly in a zig-zag pattern, much like an escalator, and then fall straight down, much like an elevator.  It is the rapid speed of the fall and not the duration that creates panic selling.  MarketCycle’s fix is to constantly and continually monitor risk levels and then to periodically pre-position our portfolios based on the signals from our highly accurate indicators.  If we are entering a (measurable) high risk period, we utilize 25% of our portfolios to protect the remaining 75%.  When risk is naturally low because of a completed correction, we re-invest the 25% allocation in assets that are being offered at a then discounted value.  With this allocation we correctly buy low and sell high while protecting (and hedging) the rest of the longer-term portfolio when necessary.  MarketCycle finds that actual high risk is a condition that rarely occurs (2000, 2008, 2011, 2015, 2020).  Panic selling is not a profitable investment technique; it pays to do the opposite.

FAILING TO UNDERSTAND RISK TOLERENCE:  Investors judge themselves against the gains of the S&P-500.  Yet few people can or should invest 100% of their hard earned money into only stocks.  The truth is that few investors, regardless of age or wealth or the need for money, actually have a high risk tolerance when the market is in freefall.  My experience from dealing with clients over the years is that NOBODY has ANY tolerance for risk when the stuff actually hits the fan!   MarketCycle’s fix is to diversify portfolios into multiple assets that are all showing individual bullishness & momentum and also into assets that constantly give us dividend payouts and leveraged interest.  Diversified asset positions within one’s portfolio must not all move in tandem; on a bad day for the S&P-500, you want half of your assets going up and half going down and on a good day, you want most (but not all) of them going up so that, over time, the portfolio trends up with less volatility.

TAKING TOO MUCH RISK:  Investors tend to play the stock market as if they are playing the lottery.  They gravitate toward higher volatility lottery style stocks that eventually rise and then inevitably collapse.  MarketCycle’s fix is to invest in lower volatility assets.  The higher the volatility that an asset has, the less we hold of it; volatility determines our allocation.  Even right now with inflation rising, MarketCycle’s allocation to gold is low and our allocation to leveraged convertible bonds and preferred shares is high.

HAVING UNREALISTIC EXPECTATIONS OF RETURNS:  If one expects outsized returns, then there is a tendency to invest less and to spend more.  MarketCycle’s fix is to use our frequent “Client Market Updates” to encourage clients to add money to their brokerage account when they are most fearful.  This obviously isn’t much of a fix; it is more of a hope… a hope and a dream… lol.

TRYING TO TIME THE MARKET:  Market timing cannot be done.  Market timing cannot be done.  Market timing cannot be done.  Investors tend to rapidly forget their losses but to eternally remember their gains and this tendency causes them to feel overconfident about their ability to time the market.  MarketCycle’s fix is to monitor (measurable) risk levels on a daily basis and to protect client accounts when risk is high… and to then invest more heavily when risk is low or when risk has literally already been reduced via a market correction.  This is a distinctly different approach; we are not timing the market, we are measuring risk levels and deciding when to play hard and when to be less aggressive.  And while market timing does not work, skill does exist and skill comes from doing one’s homework and from learning via a million past mistakes and using all of this information to develop indicators that produce real and clear-cut signals.  I now have such faith in MarketCycle’s proprietary indicators that I have complete fidelity in following them.  (MarketCycle only goes aggressively ‘short’ when we are in a cyclical bear market within the confines of a secular bear market, as in 2000 and 2008.)

FAILING TO RECOGNIZE WHAT AN ASSET IS ACTUALLY WORTH:  A $2 stock is not a bargain if it is about to drop to $1 per share.  A $200 stock is not overpriced if it is about to rise to $400 per share.  An individual stock that we would have loved to have liked enough to hold was Beyond Meat (BYND).  Starting some months back it went straight up but then it crashed and burned over the past few weeks… exactly as I told a client it would do.  MarketCycle’s fix is to (almost) always position into quality.  Quality stocks, by their very definition, assure proper pricing and steady, ongoing corporate strength.  Yes, ‘quality’ is a thing, just like ‘momentum’ or ‘growth’ or ‘value.’  Quality isn’t exciting, but it is profitable, especially if it also contains either of the two co-factors of momentum and growth.  

GETTING CAUGHT UP IN MARKET EUPHORIA:  Investors nearly always invest more when the market is euphorically high and less when the market has fallen and in panic mode.  MarketCycle’s fix is, again, to send “Client Market Updates” that encourage the buying of shares when the market has fallen.  And again, we use 25% of our portfolios to go counter to the pervading investor emotion; we are cautious when investor euphoria builds to too high of a level and we are more bullish when the majority of investors are at their most fearful.

FORGETTING THAT TAXES ARE IMPORTANT:  To repeat, investors continually buy and sell based on emotions rather than on quantifiable facts.  Investors buy high and sell low regardless of how many times they are told to do the opposite.  MarketCycle’s fix is to sell any losing shares at a major market bottom and to immediately reposition into similar or better assets.  This is called “tax loss harvesting” where, if one locks in a loss of $1000 they can then reap a future $1000 gain without paying capital gains taxes on either sale.  Why give profits away to taxation?  MarketCycle most recently did “tax loss harvesting” in late March of 2020 and immediately moved the proceeds into highly discounted Closed-End-Funds.  Clients in non-retirement accounts will benefit taxwise in the future.  This has a bigger impact on profits than people commonly imagine.



COVID-19:  The coronavirus-2019 is important because of its impact on the economy and on people’s lives, but after these comments, I plan to limit any discussion of it on this blog.  As I’ve been saying for 9 months now, this virus naturally wants to be more contagious but less lethal.  It does not want to kill its host, it wants to be able to re-use its host each year.  It mutates over time to accomplish this and it has already mutated at least twice during 2020; in its second mutation it developed a small hook on the end of its sticky spike, making it easier to attach to human cells.  It has, in fact, already become much more contagious but also less lethal.  Hospitals across the globe are now confirming this.  I’m in no way being ‘Pollyannish’ about this, I do know that people are still dying and that this is devastating for those involved, but a fact is just a fact and risk is measurable and it is always exactly what it is.

And no, it is not ‘new drugs’ that are making the difference, although Dexamethasone (steroid developed in 1954) does help in ICU units (mostly in the U. S.) because it puts an immediate halt to the patient’s deadly cytokine response (I covered this in a past posting).

IMPORTANT:  The most up to date research, recently published (September) in The Annals of Internal Medicine, show that 99.75% of all recent cases result in symptoms that range from no symptoms to “cold like” symptoms.  The global death rate is now @ 00.25% (down from its original 2.5%) and fatalities are mostly happening in extremely old, weak and (auto-immune) sick individuals.

The new Moderna vaccine is showing fewer side effects as compared to its competitors, fast production, a high success rate, ease of transport, and it should be available within months.  My guess is that it will be more effective than is the flu vaccine (which is only 50% effective) because they have taken a totally different approach with this particular coronavirus vaccine.  Some of the other new coronavirus vaccines have shown serious side effects during their trials, such as transverse myelitis… which is where you lay in bed for a few weeks, unable to move your arms and legs while also experiencing an ill-timed inability to control one’s bladder and bowels.   So, my suggestion is the Moderna vaccine for those who want a vaccine.

The chart below (shown up to November 1st) reveals that our current higher case numbers (more contagious) are NOT causing higher death numbers (less lethal).  If Covid-19 were still as dangerous as it was at the beginning then the two lines shown below should be rising together in a very slightly delayed fashion, just as they did in March, but they are not.  Since November 1st, the blue line has moved up slightly, but not much and deaths are slightly rising ONLY in the United States, for obvious reasons.  We are not yet out of the woods, but this is good news… and we need some good news.




MARKET SUMMARY:  The bullish stock market continues!  The U.S. still leads in strength relative to all other countries and regions and I expect this to continue, although emerging markets may start to perform better than they have over the past decade, especially India and China.  If inflation continues to move higher and if the USDollar continues to move lower or to go sideways (sideways is more likely) then Emerging Market stocks will likely benefit… but I do not expect them to outperform the United States any time soon.  Frankly, just about the only things not showing outsized strength right now are U.S. Treasuries and also small-cap stocks and even those two aren’t too bad.  On the downside, bullish opinion is still too strong; the market performs best when bearish opinion is predominant; when this excessive bullishness dissipates, the stock market will move higher at a faster rate.  S&P-500 hits 4200 within 12 months?

In late December or early January, like I always do, I plan to publish a summary of the 2021 predictions from the twenty or so major market players such as Goldman Sachs and Schwab and JPMorgan as well as the major analysts such as Ned Davis and Strategas and Ed Hyman.  Much of this is originally only sent to their clients or to people (like me) that have somehow gotten on their client email lists… and I’m happy to pass it along and they don’t seem to mind (many of them read this blog).




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MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only, is not considered an individualized recommendation or personalized investment advice, may not be suitable for everyone and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Past performance or performance charts are not a guarantee of future performance. Portfolio performance charts are shown net of fees so the management fee, brokerage fees, trading fees and ETF fees have already been subtracted. Current performance may be higher or lower than that shown and differing accounts may show different results. Investment returns and principal value in client accounts will fluctuate. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Be sure to consult with a tax professional before implementing any investment strategy.