Prepare, Don’t Predict. Surviving Uncertain Markets.

If we could predict how the stock market performs, we’d be retired! The only thing CERTAIN right now is UNCERTAINITY. But is this uncertainty, new? War, presidential elections, inflation, oil, & ongoing recession talk have us all feeling a bit, well, yucky!

In this episode of the Stuff About Money podcast, Erik Garcia, CFP®, BFA sits down with Michael Laughlin, CFA, FRM, Head of Portfolio Specialist Team at Morningstar to discuss some key ingredients to building long-term-investment portfolios. You will be surprised to learn one key ingredient is humility.

Episode Highlights:

  • Michael discusses his role as a translator and liaison for the investment team which is helping clients understand market environments and build intentional portfolios to manage risk. (3:21)
  • Michael mentions that investing is a slow but effective way to build wealth, especially through the power of compounding and sticking to a long-term plan. (5:45)
  • Michael explains that trying to time the markets is not recommended, as studies show that investors tend to buy high and sell low, resulting in significant underperformance. (8:12)
  • Michael discusses how recessions have consistent outcomes within three to five years, making it crucial for those nearing retirement or transitioning to be cautious about spending down principle during a market shock. (16:29)
  • Michael explains that Morningstar is a research-driven investment firm that believes in being prepared for different market environments rather than trying to predict specific outcomes. (20:25)
  • Michael mentions that the current market environment is characterized by a high degree of uncertainty, leading to a cautious approach to taking smaller bets in portfolios. (26:31)
  • Michael discusses how Morningstar started as a research and data company in the 80s and now manages investments by categorizing equities based on value, core, and growth, as well as large, mid, and small sizes, to understand the characteristics of a portfolio. (30:27)
  • Michael explains that the price you pay for an asset is crucial in determining its investment potential, as a great asset at a bad price can be a bad investment, while a not-so-great asset at an amazing price can be a good investment. (39:24)
  • Michael emphasizes that historically, markets have experienced fluctuations and declines on an annual basis, but have also shown overall growth over time. (44:51)

Key Quotes:

  • “True investing is a great way to build wealth slowly and not a great way to build wealth quickly.” – Michael Laughlin, CFA, FRM
  • “What we actually try to do is build portfolios that are robust to multiple different market environments, or multiple different outcomes. And then, as time passes, and those outcomes reveal themselves in a way, we continually update, we continually tweak, we continually tilt. But we never say, okay, you know, we’re going to be in a high inflation, low growth regime.” – Michael Laughlin, CFA, FRM
  • “It’s important to remember that the price you pay for something matters. So you can have a great asset, but at a bad price be a bad investment. And, you know, conversely, you can take maybe a not-so-great asset at an amazing price can be a good investment.” – Michael Laughlin, CFA, FRM

Resources Mentioned:

About Erik Garcia

Hi there, I'm Erik. How you manage your money and other resources impacts practically every aspect of your life. I help individuals and families invest plan for a more secure and predictable financial future. Thanks for taking time on my site!

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