This week provided the perfect example of why we should not allow ourselves to come under the sway of either the “house-money effect” or the “snakebit effect.” Monday and Tuesday’s rallies were among the largest we have experienced since the depths of the pandemic. Those who threw in the towel during the last few weeks made their situations more precarious since rallies are too sudden and too steep for us to effectively market time. Before people who sold out realize that the trend has shifted, they will find themselves buying into higher prices. If the rally is not sustainable, they will get hit twice by declining markets.
I do not think that the worst is over, but I could easily be wrong. In the end, I do not need to be right. We have lots of opportunities to buy low-priced investments. Many pay great dividends or interest. Sure, some companies will have problems and cut their dividends, but that is why we have diversified portfolios.
Eventually, we will lengthen the maturity of our bond holdings. We may also try to take greater advantage of the buying power that the current dollar strength provides us. In the meantime, we shall focus on what we can control, including tax-loss swaps and rebalancing.