One of the more interesting things about 2017 was the apparent shift in investor psychology. Up until the latter part of the year, fear (is this the top? are we headed for another crash?) and disbelief/skepticism (how can markets make new highs with Brexit and Trump?) seemed to dominate investor thinking. As markets continued to reach new highs, however, ‘fear of loss’ seemed to shift to ‘fear of missing out.’ It has once again become exciting for people to talk about the markets and the amount of questions, and the money being thrown at unproven business models in digital currencies and marijuana is telling.
While these are signs that the market is closer to a top than a bottom – we buy into the ‘cycle of emotion’ where market bottoms coincide with extreme fear, while tops come with extreme exuberance – predicting the timing of when the top will occur is anyone’s guess. This creates difficulty, given that we live in a world where performance returns are published on a daily basis. Most pundits expected higher volatility in 2017 (an erroneous forecast). That forecast has now shifted into 2018. Our recommendation to investors is to have a conversation with their investment advisors on cash needs. If money is required in the next year or two, it may be wise to lock in some gains.