The Four Goals of Investing

March 30, 2021

By: Michael Oyster, Chief Investment Officer

What many investors have been told to expect by Wall Street has not always meshed with the actual experience.

After multiple historic stock market corrections and subsequent dizzying advances, one of the most common feelings among investors is a feeling of “what now?”

Despite access to an enormous amount of financial information and investment advice, many investors have come to realize that they need better resources to navigate the constant, and sometimes extreme, undulations in the stock market, and the resulting bouts of volatility.

Regardless of their sophistication, or wealth, anyone can arguably improve their investment outcomes by keenly focusing on four investment goals:

  • Increase income
  • Reduce risk
  • Sell above the stock market
  • Buy below the stock market

The Four Goals, as we call them, can be implemented with conservative options strategies that help to add a structured discipline into an investment portfolio.

In the absence of active management – which, when applied in a consistent fashion can serve as a different means of expressing investment discipline – many investors tend to ride the wave of the market, both up and down.

If investors were truly long-term focused, the stock market volatility they endure would likely seem incidental, but instead, it often rattles many people into making sub-optimal decisions. Many investors tend to “greed in” and “panic out.” When stock prices are surging ever higher, and the rallies are breathlessly commented upon by financial media and Wall Street pundits, investors tend to take notice and action – perhaps self-defeating action at the exact wrong time.

During the fanfare of market rallies, many investors are inclined to buy on fears of missing out or seeking comfort among the masses. The buying activity in such moments is often perhaps viewed by more disciplined investors as an opportunity to sell.

One can hardly blame the average investor, armed with the confidence of their advisor and reinforced by the excitement of the market mob. . After all, it can be psychologically reinforcing to see the stock market, or specific stocks, touted in the media and in the sell-side research. Such investors essentially buy into a market mob, and generally what happens next often is not pretty.

Stock prices can exhibit positive momentum during an upward trend but after reaching an extreme, can quickly slip lower. After investors have lost even a small amount of money chasing a hot stock that has started to fade, they tend to panic and sell, caving to the natural human tendency to avoid the pain of loss.

This is the endless cycle of markets and one that options often can help temper. A disciplined, strategic investment program, coupled with a long-term focus, can help investors turn the Four Goals into reality.

Stay tuned for our next essay where we review how conservative options strategies can help increase income and enhance portfolio return.

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