Know when to hold ‘em, Know when to fold ‘em, know when to walk away, know when to…
Ah, the classic Kenny Rogers song “The Gambler” seems to be echoing through my head these days. No, I’m not playing more poker nor am I planning for a country music festival. If you’re thinking I’m writing about how the stock market is just like gambling you’re wrong again.
However, this On Pointe is going to explore how there are similarities in decision-making with Poker and Investing. But before we peer behind the curtain let’s start with a quick story.
A good friend and client called me the other day. We started our call with a discussion over Maryland Tech Council projects he and I are both involved in. He happens to run a cyber company out of Baltimore, Md.
Most of our discussion revolved around MTC’s vast resources that can help new entrepreneurs. As many of you know, Alpha Pointe Capital has supported emerging industry companies and executives not only with our wealth management and 401(k) services but with our involvement as well.
As we talked through all aspects of different resources and some of our new regional chapter initiatives, the conversation switched to the markets.
“Jim, what the heck are you doing for your clients in these markets? Is there any end in sight with for all this volatility?”
The answer is easy but takes some time to explain, and I never give up an opportunity to help educate people with our investment philosophy! We do invest somewhat differently and believe our process is based on the only law of economics… supply and demand (for an in-depth dive into our investment strategy click this link to
So, I answered my friend that I was less concerned as to how much lower the markets were going but most concerned about what the market recovery would look like.
“What? What do you mean by that?”
My main reason is I’ve witnessed market leadership either change or be altered when entering these types of deep drawdowns. This means the same investments that may have led your portfolio to new highs may not be the best choices for the market recovery when markets eventually bottom.
Case in point, the “Tech Wreck/Dot Bomb” era in the year 2000 saw a massive selloff in tech stocks, but the markets weren’t all bad as the Dow Jones Industrial Average ended the year higher than the tech-laden Nasdaq. This is what I refer to as a “leadership change”.
“So, what are you doing for your client’s portfolios?” Ah, now we can cue the “Gambler” himself…
Simply put, adjusting. A slightly longer answer is we have 3 decisions we are faced with each market day, are we buying, selling, or holding… “You never count your money, while sitting at the table…”
And when it comes to adjusting, it may require some selling, which is one of the most difficult concepts for investors.
Some investors think they are “right” and should be “right” and forget their goal is to push their portfolios higher. This may mean that if the current set of investments is not prepared to meet these objectives in the desired time frame you are looking at then it’s time to change course.
Not much different than a business having to pivot or change course to meet its objectives. And a change of course may mean some short-term losses.
My friend could relate a little bit with my analogy of the pivot as his business had to make some very challenging decisions, which required him to take some short-term losses, but his current business is stronger than ever.
So, he threw me a curveball…. “I’ve always been told to never sell in a down market, how is what you’re doing different?”
Selling is difficult in good and bad markets. Psychologically it may be one of the most challenging compared to “what should I buy.”
Here’s what Sham Gad wrote for Investopedia in the 3/12/22 series “How to Invest with Confidence.”
- When it comes to investing, the decision of when to sell a stock is often more difficult than deciding to buy it.
- In general, there are some intrinsic reasons—related to the stock itself and/or the markets—to sell a stock, and some extrinsic reasons related to the investor’s finances and lifestyle. Occasionally, the sell decision may be triggered by a combination of intrinsic and extrinsic factors.
- Emotion and human psychology can sometimes get in the way of making a smart decision, so stay attuned to the data (and not your feelings).
Ultimately, this goes back to my earlier point. Change, specifically leadership change. Our investment philosophy is predicated on investing in “strong” stocks relative to “weak” stocks. Thus, the nickname “Invest in Strength.” If strength is defined as leadership, and leadership in the markets is moving… you may need to move too.More simply, play the hand you are dealt, and you need to make one of 3 decisions when it comes to each investment and/or asset class… Hold’em, Fold’em, or Walk Away…Hope you enjoyed this On Pointe, if you’d like to subscribe, please click here…
James S. Gibbons CPFA
Alpha Pointe Capital-Founder/Wealth Manager
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Registered Representative of Thurston Springer Financial and Investment Advisor Representative of Thurston Springer Advisors. Securities are offered through Thurston Springer Financial, Member FINRA, and SIPC. Advisory services are offered through Thurston Springer Advisors, an SEC Registered Investment Advisor. Alpha Pointe Capital is a DBA of Thurston Springer Financial and Thurston Springer Advisors.