Financial Opinion and Insights

Investors Vote on Washington

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

It was interesting to watch the markets last week as our elected politicians enjoyed spending much of the entire last two weeks of July grand-standing in front of the cameras on a daily basis – and somehow magically managing to stay on camera right up to the time they left town for the August recess.

As they kept talking about the impending ‘crisis’ and the potential downgrading of the government’s debt (Treasuries), the pros on Wall Street were selling stocks and buying the very debt that no one would presumably want – the same debt that would presumably lose value after the downgrade.   If that doesn’t reveal a lack of confidence in their handling of the economy, I don’t know what does.  The pros were willing to buy `safe’ Treasuries, even if downgraded resulting in higher rates and lower prices in the future, than stay in stocks!  It really doesn’t sound like a professional strategy, does it?

What does this mean to the individual investor?   It’s unclear, at least to me at this point, how much of the selling was done as part of an asset management strategy and how much was done simply to raise cash in order to meet redemption requests by individual investors. 

Short-term volatility has always been a part of stock market investing.  Many of us can remember the early ‘90s when a 50-point swing in a single day was so unheard-of (at the time) that trading curbs were installed once a 50-point move occurred!  Today, 50-points seems like a day off!   If the institutional selling was done in order to meet redemption requests, I fear many of those individual investors – once again reacting to headlines – will once again get ‘whipsawed’ by the markets.

If past experience is a guide, most of the individual selling was likely instigated by individual investors acting on their own; and very little, if any, was done by investors working with advisors who have them allocated with a long-term plan in mind.  Give it six months – say, March – It wouldn’t surprise me to see the markets recovered and the same people buying back in at higher prices.



Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary®  in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.


Written by Jim Lorenzen, CFP®, AIF®

August 9, 2011 at 8:10 am