Yogi Berra pretty much sums up how I feel about being able to predict the markets: “It’s difficult to make predictions, especially about the future.” 

That being said, there are five tendencies that have historically been true over long periods of time: 

1. Stocks will outperform bonds, so take your risk in stocks to align with your risk level. 

2. Small companies will outperform large companies, so own more small when appropriate. 

3. Value stocks will outperform growth stocks, so overweight value when appropriate. 1 

4. The U.S. won’t be the best performing market every year, so own the right amount of international. 

5. The markets will be up in about three of every four years, so it’s not really different this time and buy-and-hold can still work if you are investing for the long term. 2 

I believe that markets matter to the extent that they are great creators of wealth if you let them work for you. 

If you have children or grandchildren you probably remember the movie “Finding Nemo.” One of the characters was a shark named Bruce who was struggling with his desire to go against his nature and not eat the fish. In fact, he had a slogan he kept repeating: “Fish are friends, not food.” 

Our nature as Americans and capitalists is to try to outperform and excel, in other words: eat the fish. However, if we took the shark’s slogan and modified it slightly, we could come up with a critical component of an investing philosophy: “Markets are our friends, not our adversaries.” 

The markets are our friends. In fact, we should embrace them and the power of capitalism that drives them. 

We can always find someone predicting up or down markets, sectors and stocks. However, being right enough to beat the fees and costs associated with that activity is a losing game. It’s no secret that two thirds of managers fail to beat their benchmarks and that there is no consistency in the out-performers. 3 

Yogi Berra had it right—it is difficult to make predictions about the future. So instead of worrying about what may or may not happen, focus on why the markets are our friends, not our adversaries. 

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1 Cross Section of Expected Stock Returns”, Eugene F. Fama and Kenneth R. French, Journal of Finance 47 (1992). 

2 Michael Jensen, The Performance of Mutual Funds in the Period 1945-1964, 1968  

3 S&P Indices Versus Active Funds (SPIVA) U.S. Scorecard, Year-End 2013  

Implementing a buy and hold investing strategy cannot guarantee a gain or protect against a loss. Stock investing involves risks, including increased volatility (up and down movement in the value of your assets) and loss of principal. Investors with time horizons of less than five years should consider minimizing or avoiding investing in common stocks. 

The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. 

Small company stocks may be subject to a higher degree of market risk than the securities of more established companies because they may be more volatile and less liquid. 

International markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. As a result, they may not be suitable investment options for everyone. 

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