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Tenets of long-term investing, equity edition

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Bill HackneyAtlanta Capital Management

      Atlanta - In a world of amplified volatility, investors often have to sort through conflicting signals from market and economic data. Bill Hackney shares three investment tenets that can help us navigate through the equity markets for the long term.

      To be a good investor, you need to be a little bit sadomasochistic

      Economic fundamentals drive stock prices, but mass psychology can often cause prices to overshoot the fundamentals both on the upside and the downside. So in my view, it stands to reason that a good time to invest for positive long-term return potential is when the consensus of investors and the public is negative on the outlook for the stock market and the economy - when there's blood in the streets, so to speak.

      The great investor, Sir John Templeton, probably put it better than I did: "Bull markets are born on pessimism, they grow on skepticism, mature on optimism and die on euphoria." I think we're still a long way in this country from euphoria, and that's why I still think the long-term outlook for stocks is pretty good.

      Don't just do something, stand there

      Sometimes your best investment decision is to do nothing. When stock prices are dropping sharply on bad economic news, there's generally intense psychological pressure for people to do something. They see the bad news and they think it's imprudent to do nothing, so they attempt to make changes in the portfolio in the midst of a crisis, when prices are often already down and fully reflect the bad news. Nonetheless, they go and do something anyway.

      If you have a diversified portfolio of assets that are not tightly correlated with each other, and if you're maintaining your asset allocation guidelines, you have the potential to trim back on your winners and add to your losers. I've found that the worst time to do some wholesale portfolio re-jiggering can be in the midst of a financial panic.

      If you don't know what you're doing, you should probably stay fully invested in the stock market

      There's a lot of investment advice around how you should be cautious and avoid stocks in favor of precious metals or some other asset class, but history shows that U.S. stocks have risen about two-thirds of the time and declined about one-third of the time.1

      Bottom line: In my experience, after every recession, both the economy and the stock market have recovered. I would chalk that up to our capitalistic, free-market economy, which has so far shown amazing resilience and recuperative powers.