In this week’s Torah portion, Miketz, we read about Joseph’s meteoric rise in Egypt after interpreting Pharaoh’s dreams of seven good years followed by seven years of famine, leading to his appointment as second-in-command to manage the crisis. Joseph’s interpretations proved correct, and his economic plan of saving as much as possible helped Egypt survive the seven years of famine.
In Tractate Sanhedrin 22b, there is an interesting question of whether a kohen (priest) is allowed to drink wine nowadays. There is a prohibition for priests to serve in the Temple if they have drunk wine. It follows that a kohen who knows when he will be working in the Temple should not drink wine on that day. If he does not know the day but knows the week, he should not drink wine that week.
Nowadays, kohanim have no clue what the Temple schedule is, and the Third Temple could suddenly be built, so maybe they should never drink wine. Rabbi Yehuda Hanassi answered that although this is true, their ruin (not being able to serve in the Temple) is also their help – it has been many years since the Temple was rebuilt, and they can now drink wine any time.
He is basically saying that we can sort of predict the future based on the past. It has been nearly 2,000 years since we had the Temple, so the odds of it coming specifically tomorrow are slim.
People love to predict things – with no better proof than the explosion of betting markets – and predicting stock market movements is no exception. Everyone knows which way the stock market will move, correct? We all hear stories how so-and-so knew that the market was about to crash and sold off her entire portfolio, or another who knew exactly when the market had reached its low and invested everything she had and became a multi-millionaire.
Sounds easy, right? Wrong! If it was so easy to predict a market crash, why have the doomsayers been consistently wrong in their crash predictions? I’ve been in this business for over 30 years and have constantly been hearing predictions of a crash. In those 30 years it’s happened four to five times. When it finally does crash, they insist that it will keep dropping and dropping and, I guess, think it will go to zero. Each time, the market has totally recovered, and the big drops were soon forgotten.
Do you really think it’s easy to predict the future? Look no further than the latest 10-day weather forecast to see how difficult it is. We were just in Eilat, and suddenly, it started raining. The day before, when we checked the forecast, it called for sunny skies. Our trusted weathermen, with the most sophisticated scientific instruments at their disposal, can’t tell us what the weather will be two days from now.
This usually leads me into a rant about global warming, but I’ll leave it to economist Thomas Sowell, who said, “Would you bet your paycheck on a weather forecast for tomorrow? If not, then why should this country bet billions on global warming predictions that have even less foundation?” But I digress.
Investors should draw on past experience and history, learn from it, and try to create a plan based on current similarities. They should use history as a guide and plan accordingly. With a little perspective, you can avoid mistakes many investors make in both rising and falling markets.
It will never fall.
Investors often think that nothing needs to be done to their portfolios when markets are rising and their portfolio value is rising as well. Unfortunately, even in rising markets, mistakes can be made. It’s important to remember that markets don’t always move up and that they can drop as well.
For younger investors, market gyrations are less problematic. For retirees or those fast-approaching retirement, the need to preserve your capital becomes much more important. The chances are that once you hit retirement, what you managed to save is what you will have to live off of (in addition to pension monies and bituah leumi/social security), and having a portfolio that is overly aggressive can blow up in your face if the market gets slammed.
Don’t forget about your asset allocation. The recent market surge has been driven by certain segments of the market, such as tech stocks. Make sure that your portfolio stays in balance. For example, if you had 15% exposure to technology and now, after the run-up, you have 30% exposure, you may need to pare back on your holding.
When the market is strong, some investors lose sight of their long-term goals and focus just on how much they’re making in the short run. But if you start focusing on the short term, you might take on more risk than you should.
Be patient. It helps to remember the most important rule of investing for retirement: You’re investing for the long term, not to get rich tomorrow.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to a Secure Financial Future with Global Investing. www.gpsinvestor.com; aaron@lighthousecapital.co.il