The segment on CNBC, right before the close yesterday, featured commentary from Rick Bensignor and David Darst. There were a couple of points made in the segment that seem to have been accepted as truthisms that I think are actually counter-productive.

Bob Pisani noted that "it's not about stock picking, anyone who has been a stock picker has had a terrible year." In reply Bensignor said he talks "to two of the most of the most important institutional players in the market place daily and they'll tell me this is absolutely the toughest market, there is absolutely no strategy that is working right now."

Maybe this is a salient point for certain types of professional investors but to the extent that do it yourself investors and for that matter RIAs think this way, it belies a lack of patience and focuses on the wrong period of time. Far too many market participants focus on timeframes that are incongruous considering the time horizon of the money being managed.

In this context I usually ask rhetorically "quick, how'd you do 3q 2006?" The other day when I mentioned that the S&P 500 was down 6.6% on November 20, 2008, how many remembered that day? These short term measures are almost useless for long term money in terms of what really matters which is having enough when you need it. There is some relevance but it needs to be thought of in the proper light. First is respecting the short term in that short term and often later forgotten-about panics can be where the biggest mistakes get made and short term mistakes can matter. Panic selling at a low, when not learned from and so repeated will do an investor in.

The other point of relevance for short term measures is benchmarking. If an investor can become proficient enough of an investor to be mediocre, can avoid panicking and of course save enough they have a good shot of having enough when they need it. The way to measure being at least mediocre is by comparing your result to that of some broad benchmark with the full understanding ahead of time that there will be quarters and years where you do lag the market.

Bill Miller got much acclaim for beating the S&P 500 for 15 years in a row. Then he gave back much or all of that outperformance during the financial crisis for getting caught with too much to many of the wrong financial stocks. As "great" as he was, the streak ended badly. Knowing ahead of time that you will not beat the market every year or quarter actually removes a burden. If someone is mediocre, which is enough to get the job done, then they should expect that sometimes they will beat the market and other times they will lag it, simple as that. In this context benchmarking becomes important for making sure you are generally staying close, or close enough, over some long period of time. When a portfolio lags by too much year after year then chances are something needs to change either in the approach a person is taking or this person needs to hire some help.

The ideas above are building blocks for figuring out how to navigate through market cycles. From there can come things like risk adjusted return or John Serappere's 75/50 portfolio.

The other point made in the CNBC segment was also from Bensignor when he said "you have to reach for yield, there is nothing else. You're not going to reach for treasury yield at 2.5% and short term stuff at 50 basis points so you have to go for stocks that will get you 5-6%"

The notion of the Fed "forcing" money into risk assets by keeping rates low makes no sense to me and also speaks to lack of patience. Every investor has some portion of their investable assets that they should leave in cash. If the shortest term interest rates are essentially zero that is unfortunate but if you have money that should not be exposed to risk assets then you shouldn't expose that money to risk assets. Ten years from now we will be saying "hey do you remember back when rates were zero?" Point being that at some point rates will normalize.

I would also reiterate on this point that most parts of the fixed income market are very expensive. Bond prices can stay expensive for a long time but if yields go up a lot then holders of longer term debt will be stuck with low (relative to then prevailing rates) yields that have dropped a lot in price having to wait it out until maturity. People in bond funds could be worse off because there is no par value that funds return to although the payouts of the funds would start to move higher.

Just like there is nothing wrong with taking risk in the equity portion of the portfolio, for some people it is suitable to take some risk in the bond portion but this is not right for everyone and to the extent people are taking risks they don't understand, which happened with target date funds, internet stocks and housing (just examples as I don't believe "bubble" the correct word to describe the bond market), it becomes a big problem at some point.

One final thought that is more of a building block which is that you can only take what the market is gives which might be another one I can take credit for. What this means is that the typical investor is not going to be up 30% when the S&P 500 is up 4%. It is certainly possible to have a year or two in an investing career where the typical investor is way ahead but this doesn't happen often unless there is a lot of risk taken. In a similar fashion a fixed income portfolio that yields 8% in a 1% world is taking a lot of risk. That doesn't mean there must be a consequence for that risk but it is being taken.

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