A View from The Top
Non-Emotional, Tactical Mutual Fund Investment Strategies in the Age of All-Time High Valuations
As the stock market reaches new heights, investors find themselves in a delicate balancing act. On one hand, all-time high market prices and valuations means big gains and big excitement for market participants. Yet, on the other hand, the increasing specter of market corrections can quickly erode both exuberance and paper profits.
Managing risk at all-time high (ATH) levels is paramount and one of the way to continue to participate in rising markets while mitigating potential market drops is the utilization of quantitative stop-loss indicators built to provide downside risk management. These tactical, data-driven processes help investors navigate turbulence, working to preserve gains while managing risk levels during market volatility.
The Importance of Managing Risk at ATH Valuations
When stock prices reach all-time highs, the potential for large gains is enticing, but so is the risk of significant losses. The price movements for ATH stocks and sectors can be unpredictable. This can include many emotionally driven price movement effects to the upside and downside, such as:
- Momentum Effects, where the price continues to appreciate partly due to the ATH status itself.
- Value Effects, which tend to pop up a few months after ATH when animal spirits now see the stock as overpriced.
Regardless of type, this tends to be a market moment where emotions take hold, and poor decision-making can lead to avoidable losses for investors.
Market corrections, while normal, can be particularly severe following periods of rapid growth. Traditional buy-and-hold strategies may not suffice in these scenarios, as they can expose investors to prolonged downturns, missed opportunities, and high volatility. Therefore, the non-emotional investment approach to managing risk becomes crucial.
This is where trend indicators demonstrate their value.
How Trend Indicators Work
A trend indicator measures new highs to new lows to help traders determine trending market conditions and volatility. The HCM-Buyline®, our proprietary indicator, exemplifies this strategy by quantitatively measuring market trends to mathematically determine when and where to move assets. This tactical, risk management approach allows investors to participate on upward momentum while providing them somewhat of a safety net in an effort to avoid losses.
Keys to Successful ATH Investment Strategies
1. Strive to Maintain the Gains
Maintaining gains is essential for meeting long-term investment goals. By overlaying investments with a risk management trend indicator, investors can aim to build on their gains while striving to prevent significant erosion during a downturn.
2. Manage Risk
Portfolios with a tactical risk management indicator like the HCM-Buyline® can potentially mitigate losses by actively adjusting (or moving to the sidelines) during market downturns and major corrections. This approach contrasts with the passive buy-and-hold strategy, offering a proactive, mathematical alternative.
3. Be Aware of the Herd Mentality
In markets characterized by ATH valuations, following the herd can be risky. A contrarian approach that follows mathematical market signals can assist investors in making systematic decisions rather than emotional reactions.
4. Non-Emotional
Investing based on emotions can lead to poor decision-making. Trend indicators provide repeatable, disciplined method to manage investments that aids decisions driven by data and strategy rather than fear or over-confidence.
HCM Mutual Funds: A Tactical Approach to Risk Management
HCM Mutual Funds offer a diverse array of actively managed strategies designed to perform across various market environments. Our growth-oriented methodology is underpinned by proprietary tactical risk management, including the HCM-Buyline®. This strategic positioning allows our investors to participate in upside growth while striving to mitigate downside risk, ultimately aiding in potentially outperforming across macro events and market cycles.
Avoiding the Volatility of ATH Valuations
Navigating the stock market at all-time high valuations requires a disciplined approach to risk management. Tactical trend indicators, such as the HCM Buy-Line®, are essential tools for protecting gains and minimizing losses. By embracing a proactive, contrarian, and non-emotional investment approach, investors can better manage risk and participate in rising markets while avoiding significant downturns. Howard Capital Management Mutual Funds’ commitment to tactical risk management ensures that our investors are well-positioned to achieve their financial goals, even in the most volatile market conditions.
Disclosure:
Investors should carefully consider the investment objectives, risks, charges, and expenses of Mutual Funds and ETFs. This and other important information about the Funds are contained in the prospectus, which can be obtained at http://www.howardcmfunds.com or by calling 770-642-4902. The prospectus should be read carefully before investing.
HCM Funds are distributed by Northern Lights Distributors, LLC, member FINRA/ SIPC. Northern Lights Distributors, LLC and Howard Capital Management, Inc. are not affiliated.
Mutual funds involve risk including possible loss of principal. When the Fund is out of the market and in cash or cash equivalents, there is a risk that the market will begin to rise rapidly and may cause the Fund to miss capturing the initial returns of changing market conditions. The mutual funds in which the Fund may invest may use leverage. Using leverage can magnify a mutual fund’s potential for gain or loss and therefore, amplify the effects of market volatility on a mutual fund’s share price. The Fund may be subject to the risk that its assets are invested in a particular sector or group of sectors in the economy and as a result, the value of the Fund may be adversely impacted by events or developments in a sector or group of sectors.
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