Don’t get too cozy with your investments

Various media ran an article today proclaiming that investors are more confident in 2010 compared to a year ago.  While I always scratch my head at such articles, I can also understand that investors feel better when the investments they’re buying rise in price.  But unlike with retail goods, investors don’t have the same aversion to ‘expensive’ investments.  While there remain many good opportunities, rising prices have made stocks and bonds more expensive than one and two years ago.

This phenomenon is, of course, rooted in emotion not logic – which is the only explanation for its persistence.  And it reminds me of an article authored by our CIO, Greg Rodger, entitled Do We Feel Better Yet?  Included in that article is a conversation with a client during the depths of the bear market lows.  The client wanted to boost exposure to equities – but not until it became more comfortable to do.  While investing in what feels good might be a good momentum play, it’s rarely a good long-term investment.

A full year before non-Canadian stocks began unravelling, Steadyhand Investments’  Tom Bradley penned a Globe & Mail article challenging commodity and stock bulls to diversify.  Two years later, in the bear market’s darkest days, I spoke to a group of investors and made the case for investing in global stocks and high yield bonds.

At the risk of being repetitive, it’s worth reminding advisors and investors that if you’re feeling warm and fuzzy about any of your investments, it’s probably time to rethink your strategy.