Work on your business instead of in your business. Entrepreneurs are often encouraged to depart from their daily duties and reflect strategically or philosophically on their business. Along the same vein, it may be worth reflecting on time tested lessons instead of getting too caught up in the daily minutia.    

Rule # 1. Markets tend to return to the mean over time. 

Though timing can’t be calculated, stocks can oscillate between extremes in the short-term yet emulate the mean in the long-term. Euphoria and pessimism can cloud people’s judgement. With this is mind, be careful not to get caught up in the thrill or the despair that can accompany investing. Even keel is the best motto.  

Rule # 2. There are no new eras – excesses are never permanent. 

Whatever the latest hot sector is, it eventually overheats. There are a number of examples of this; Japan in the 1980s, technology stocks of the late 1990s, housing in the 2000s, China in the 2010s. Although the circumstances are different, the patterns are the same. One way to monitor this is to look at the general media. Be wary of “it’s different this time,” or similar verbiage.  

Rule # 3. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. 

Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Stocks, markets or trends that shoot for the moon ultimately come back to Earth. Don’t get caught up in the latest and greatest.  

Rule # 4. Fear and greed are stronger than long-term resolve. 

Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism,” says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk, and some react by shunning stocks.” Human nature is to go with the herd. Reason, logic and reflection should prompt one to think, “where is the herd going?” Hopefully not off a cliff! 

Rule # 5. Markets are strongest when they are broad and weakest when they narrow. 

Think of it as strength in numbers. Broad momentum is hard to stop. Watch for when momentum channels into a small number of stocks, such as the ‘70s “Nifty 50,” ‘90s tech stocks or recent work-from-homes stocks.  

Rule # 6. When all the experts and forecasts agree — something else is going to happen. 

Nathan Stovall, S&P investment strategist, says, “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?” Be wary of too much agreement in one direction. 

Rule # 7. Bull markets are more fun than bear markets. 

This is self-explanatory, but it does remind us not to get too excited during bull markets and not too depressed during bear markets. Financial markets move in untimed cycles.


The opinions expressed are those of Heritage Financial and not necessarily those of Lincoln Financial Advisors Corp. Forward looking statements may be subject to certain risks and uncertainties.  Actual results, performance, or achievements may differ materially from those expressed or implied.