Good News!

We are continuously bombarded by bad news—war, terrorism, recession, deficits, malfeasance, speculation. These events, coming at a mindnumbing frequency, cause us to hunker down and invest more cautiously. In fact, this continuous stream of distressing news, many examples of which are cited in this article, and the related roiled security markets, offer fresh investment opportunities. The good news is that an investor with a diversified benchmark can have confidence in the stability of the U.S. economy, the concept of reversion, and the profitability of a program of portfolio rebalancing. During nearly 50 years in the institutional investment management business, one comes across some useful insights. One such insight is how intense and bleak our feelings are during, and for a while after, a bear market. But then, looking back at the resolution of the crisis, we realize it was not so bad after all. From this first insight comes a second insight related to portfolio strategy: The good sense of rebalancing is affirmed.We are continuously bombarded by bad news—war, terrorism, recession, deficits, malfeasance, speculation. These events, coming at a mind-numbing frequency, cause investors to hunker down and invest more cautiously. Happily, the U.S. economy has demonstrated extraordinary resilience under this constant barrage of bad news. This resilience reflects, among other attributes, the large, productive, and diverse nature of our economy and fruitful monetary initiatives that have been pursued.These fundamental economic strengths can reassure us with respect to investment policy formation. In a diversified investment portfolio, the opportunity to benefit through portfolio rebalancing from others' misplaced fears and related (mostly futile) “timing“ has obvious merit. By rebalancing I mean a policy of systematically (quarterly?) trimming winning segments (asset classes) and supplementing losing segments to maintain a portfolio's normal strategic proportions.The good news is that an investor with a diversified portfolio can have confidence in the stability of our economy, the concept of reversion, and the related profitability of a program of portfolio rebalancing.