All of us who are investment enthusiasts have heard Warren Buffett’s famous phrase “Be fearful when others are greedy and greedy when they are fearful”. In short, similar to the more traditional let someone else earn the last penny.

I will not be the one to question this “axiom”, but would someone be so kind as to tell me what’s next?

There are quite prestigious analysts/managers such as Ray Dalio who predict a great crisis only comparable to that of 1929. Others, however, claim that as the vaccine rollout progresses, companies are recovering and their fundamentals are underpinning prices. This is because, at the end of the day, an asset will be expensive not because it has been rising for months, but because its price is higher than its value.

So, in this world of over-information, who do we listen to? You will find opinions to suit all tastes, some arguing that now is the time to be fearful and others the opposite. And this is where our confirmation bias can come into play, which means that we only see the news that confirms our previous opinion.

And in the face of these divergent opinions, does that mean we don’t have to do anything?  Not at all. Now that it is summer and many of us will have a little more free time, it is not a bad time to take a look at our portfolio and review whether it fits our risk profile.

The rises of the last few months are likely to have taken our equity holdings above our “safe haven” threshold which, ultimately, is what we should be concerned about. If the asset allocation of my investments does not allow me to sleep soundly, it is not the right one for me.

If the level of risk we are taking on in our portfolio is higher than our profile, that is when we should sell or transfer. It is time to ask ourselves the question: what would happen if the stock market fell by 20%? would I panic or would I think that these are “sales” that I should not miss out on? Depending on the answer, as honest as possible, I will know if my asset allocation is appropriate for my risk aversion.

Another important question to ask is whether these hypothetical downturns would ruin our investment purpose. If we spent eight years saving and investing to change our car in a few months, would we be able to afford this setback or would it ruin our intention to renew our car? If we are worried, perhaps we should not wait to make the repayment the day before we go to the dealership.

It is similar to those who opened an investment account for their newborn child with the intention of saving enough money to pay for a prestigious university. After all these years where we have let compound interest do its job, is it worth waiting to pay back at the last moment? Do we risk being greedy and rushing to the end?

These are, in my opinion, the questions an investor should ask himself before buying or selling his assets, because, at the end of the day, for an individual investor, success in his investments is more a matter of psychological skills than financial knowledge. Overcoming fears and biases, because to know which companies to buy or sell there is already our trusted manager.

At the beginning of the summer I received a call for a virtual conference in which a number of experts would discuss what to expect from the market in the summer period. In short, what to do with our portfolios so that we can go on holiday with peace of mind.

I always like to listen to what the experts have to say, because you can learn from everything, but not having been able to do so does not worry me either, I know the answer. In the long term, the summer of 2021 will only be a blip in the middle of a bullish path.

So what we need to do now is to review our risk profile, rebalance if necessary and keep an eye out for sharp drops … in temperatures.

Pedro R.

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