CHAPEL HILL, N.C. (MarketWatch) — The biggest mistake investors will make in 2013 will be to reduce their equity positions in favor of either cash or bonds.
That, at least, was the consensus of a panel of top-performing advisers assembled Thursday at the World Money Show in Orlando. The show’s sponsor, InterShow, had asked me to be the moderator.
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The four panelists were chosen because each had a high ranking in the Hulbert Financial Digest’s performance ratings: Douglas Gerlach, editor of Investor Advisory Service; Jim Lowell, editor of several advisory services, including Fidelity Investor and ETF Trader; Louis Navellier, editor of several advisory services, including Blue Chip Growth Letter and Emerging Growth Letter; and Roger Conrad, editor of Utility Forecaster. (Click here to view a video of the panel.)
The focus of the discussion was the “5 Biggest Mistakes To Avoid in 2013.” Here’s my take on the consensus that emerged:
- Mistake #1: Giving up on the stock market. The panelists were unanimous in advising investors not to shift assets out of equities into fixed-income. Investors who buy bonds right now are locking in negative inflation-adjusted returns, for example. “Don’t let fear dominate your investment decision making,” one panelist urged.
- Mistake #2: Betting on the overall stock market. Calling this a mistake might seem odd, given Mistake #1. But a number of panelists believe that the stock market advance this year will become increasingly narrow — becoming a market of stocks rather than a monolithic stock market. Profiting in the stock market will therefore require us to be more and more selective in our investments.
- Mistake #3: Overweighting aggressive stocks. All the panelists emphasized the need to focus primarily on conservative stocks. This doesn’t necessarily mean buying stocks that pay high dividends, though it might. It also means buying stocks that have good fundamentals, a solid business model, a fairly predictable and consistent earnings stream, and are trading for relatively low valuations.
- Mistake #4: Paying too much attention to politics. The panelists were united that good-quality companies are able to adapt to whatever the political environment may be in Washington. Finding and investing in them should be our focus, rather than trying to predict the outcome of our inscrutable political process. As one panelist put it: “Don’t let a politician tell you what to do in your portfolio.”
- Mistake #5: Being a dumb trader. The panelists had a number of examples of this kind of mistake. One is setting stop-losses that are too close. That’s because of high-frequency trading, which makes it more likely than ever that such stops will be needlessly — and expensively — triggered. Another example is trading too actively in less-liquid exchange-traded funds (ETFs), something guaranteed to make the marketmakers rich. “You’d be shocked how much money Wall Street makes” from the frequent trading of ETFs, one panelist argued.
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