The Wall of Worry


John Micklitsch, CFA CAIA, President & Chief Investment Officer

The topic of walls has been in the news quite a bit recently and we’re not talking about the kind being discussed in the current political season. Rather we are talking about the wall of worry that the equity markets currently face. Federal Reserve policy, Brexit (Great Britain’s upcoming vote to possibly exit the European Union), valuations, currency impact on earnings, Middle East tension, negative interest rates, sluggish growth, oil and minimum wage pressures are a few of the more prominent issues facing companies and investors in today’s environment. The question, as it always seems to be, is how much should all of these items mean to you in the context of your long-term financial and planning goals. This article is not an attempt to address each mentioned item. Individually or collectively they have the potential to create uncertainty which markets generally dislike. This article is, however, an attempt to provide you with some helpful steps to consider before acting when equity markets find themselves in periods of uncertainty and potentially heightened volatility.

Step 1. Reaffirm your time horizon(s)
Whether you have your assets bucketed into accounts with specific goals associated with them or manage your investments more as a single silo, it is important to have a known time horizon associated with your investment assets. Essentially the longer your time horizon is – until retirement, home purchase, college tuition, etc., the more aggressive your portfolio can be because it has time to recover from bouts of volatility. The opposite is also true with shorter time horizons generally calling for less risk in the portfolio. As a result, it is potentially beneficial to view the events of the day through the context of your time horizon, and their relevance to personal goals that are often ten, twenty or even thirty years into the future, rather than through the emotional thought of should I or shouldn’t I be in the market based on today’s wall of worry.

Step 2. Match your asset allocation to your time horizon
Your asset allocation should shift with changes in your time horizon. If your time horizon is long, generally speaking you can accept more risk. As time horizons get shorter, the glide path towards more conservative allocations should commence. In the case of known expenditures such as paying for college or a second home, the glide path can end in a portfolio that is nearly all cash or short-term fixed income because the event itself is finite. For retirement, on the other hand a portfolio should gradually become more conservative as it approaches, however, as life expectancies get longer, retirees can begin their retirement with money needing to last another twenty to thirty years or more so growth (equities) and keeping pace with inflation should remain a part of the portfolio’s objective. If you follow this adjustment framework and put your energy into accessing where you are in your asset allocation relative to your time horizon(s), the events of the day become less important to your personal planning.

Step 3. Look for opportunities to upgrade the quality of the portfolio
Most of the great investors view volatility as an opportunity to enhance their portfolios rather than a cause for overwhelming concern. This is a mindset that is easier to embrace if you have followed Step #1 and #2 in terms of adjusting your risk exposure to your time horizon. Whether you invest primarily with individual securities or funds, volatility gives you an opportunity to clear out weak or under-performing securities and upgrade to ones with stronger prospects, fundamentals, management teams etc. Not only can this act help from a tax loss harvesting standpoint, but it can clear your mind psychologically from the dead weight associated with disappointing holdings, which in turn helps you prepare for the future and not dwell on the past.

In summary, climbing the proverbial equity market wall of worry has a lot to do with your time horizon and your ability and willingness to take risk. As Warren Buffett has famously reminded investors, “In the short run the market is a voting machine, in the long run it is a weighing machine.” What the market is weighing is the measurement of progress in human innovation and achievement that shows up each year in the form of corporate earnings. When that inspiration is nurtured in free-market, capitalist societies, long-term investing is a good bet, in our opinion, regardless of the issues of the day.

John Micklitsch, CFA, CAIA, is the Chief Investment Officer at Ancora Advisors LLC a SEC Registered Investment Advisor.

The mention of specific securities, types of securities and/or investment strategies in this newsletter should not be considered as an offer to sell or a solicitation to purchase any specific securities or to implement an investment strategy. Please consult with an Ancora Investment Professional on how the purchase or sale of specific securities can be implemented to meet your particular investment objectives, goals, and risk tolerances. Past performance of these types of investments is not indicative of future results and does not guarantee dividends/interest will be paid or paid at the same rate in the future. The data presented has been obtained from sources that are believed to be accurate and credible. Ancora Advisors makes no guarantee to the complete accuracy of this information. The indexes discussed are market performance indices and are not available for purchase. If you were to purchase the securities that make up these indices, your returns would be lower once fees and/or commissions are deducted. Past performance of these indices is not indicative of future results of the securities contained in these indices.

Ancora Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States. A more detailed description of the company, its management, and practices are contained in its “Firm Brochure” Form ADV, Part 2a. A copy of this form may be received by contacting the company at: 6060 Parkland Blvd, Suite 200, Cleveland, Ohio 44124, Phone: 216-825-4000, or by visiting our website

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