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Trusting the Market

Investing Insights Markets Economy

By Michael Foster, CFA, CFP® 

What do you think about (insert name) stock? Will the recent political shift of (insert country) hurt their market? How do you think (insert news event) going on will affect our bottom line? 

These are variations of questions that I often receive. My answer to all of them is generally “I’m not sure”. It’s not that these are bad questions. I think it’s helpful to understand market news and events to understand why your portfolio might have performed the way it did over some period. I just don’t think my predictions or forecasts on the future are any better than anyone else’s. I choose to trust the market when investing. 

When investing in public markets, you are transacting against another party believing they are getting a fair price. Buying a stock? Those shares don’t just appear out of the ether, but there’s someone or some company on the other end selling them to you at a price they either feel comfortable with or need to accept. The same goes for the opposite end when selling a stock. If the price wasn’t fair, then the parties involved would never transact in the first place. 

Often, the fund industry hires an army of analysts to seek to outperform in these transactions. These analysts seek mispricing and/or use short-term forecasts to make their decisions on what to buy or sell at a given time. This is a noble but often futile pursuit. Rather than looking for mispricing, we trust the collective information from millions of participants (including those analysts) and billions of dollars trading hands every day. Buyers and sellers baking in their collective expectations leads to information-rich market prices. Whether it’s JP Morgan, a random hedge fund, or your brother-in-law acting on a hunch he got from his horoscope, everyone has some reason to trade whatever and whenever they do.  


Source: Dimensional Fund Advisors 

So, if we’re not betting on mispricings, how should we invest? Our belief is that betting on the economy growing through a low-cost, globally diversified manner is the best option. Investors have historically been financially rewarded for taking on the risk of equity ownership and debt lending to companies over a long-term investment horizon, and we expect this to be the same going forward. Don’t get me wrong, it’s not the sexiest way to invest. I’m sure a blog titled “Michael’s Top 10 Stocks for August” would draw more eyes, but I’d be doing you a disservice.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness. Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions. Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal. Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements. Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.

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