‘Science’ or ‘Faith’ And the Bear or Bull Market Case

by Michael A. Gayed | November 4, 2013 5:00 pm

‘Science’ or ‘Faith’ And the Bear or Bull Market Case
“Science never solves a problem without creating ten more.” – George Bernard Shaw

Fans of the television series Lost may recall an episode entitled “Man of Science, Man of Faith” in which two of the shows leading characters represented opposing views of the world, one based on science (Jack Shephard) and the other based on faith (John Locke). In today’s stock market, we have a similar divide.

The “Men of Science” today are primarily in the Bearish camp, using the following arguments to justify their position:

Meanwhile, the “Men of Faith” today are primarily in the Bullish camp, using the following arguments to justify their position:

What is the average investor to make of this heated divide? Should one invest based on science or faith? There is not a simple answer to this question. Ultimately, both can play a role but not in the conventional way of thinking.

Long-term investors need to have faith not in bullish/bearish pundits but in their own investment plan/process; sticking to a plan/process is critical to investment success as we are emotional beings that are wired to buy high and sell low when we should be doing the opposite. At the same time, any investment plan/process should also be based on some level of science, ranging from the simple concept of diversification to the more complex quantitative investment models.

As for permanently aligning with the bullish or bearish camps of the day, I would highly dissuade anyone from taking such an approach. As the investment opportunity set is constantly changing, there are times that warrant more bullishness and other times that warrant more caution.  Its why our ATAC models used for managing our mutual fund and separate accounts buy and rotate rather than buy and hold.  Sure, 2013 has been a great year for stock investors.

How will next year play out?

Strategy, strategy, strategy…

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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