Do you remember how you felt about your investments in October of last year?  Or February of this year?  Of course you do.  In fact, you probably remember it very vividly.  The financial markets were in a free-fall and there was serious concern about the sustainability of our financial system.  You felt fear…whether you admit it or not.  We all did.

There have been many times over the last twenty months when fear was telling you to cut your losses and get out.  And many of you listened.  Whether you completely sold out of your holdings, stopped making your 401k contributions, or just sat on a pile of cash that normally would have been invested, you let the emotion of fear drive your strategy.

Now, the short-term direction of the markets has changed and investors are making decisions based on the "other" emotion that can wreck an investment portfolio…Greed.  When the markets are falling we feel fear, and with that fear magnified by the media, we want out.  When the markets are rising we are afraid of missing out on healthy returns, and we want in.

I have written before about how you cannot let the emotions of the markets drive your investment decisions.  When you make trades based on what you are feeling, you are condemning yourself to an ongoing cycle of buying high and selling low…not the way to make money as an investor.

Over an agonizingly long period of time, we watched the Standard & Poor's 500 Index lose 57 percent of its value before bottoming out in early March.  And now, four months later, we've seen it race 46 percent higher.  

Investors are now afraid of missing the big comeback and are falling all over themselves to get back in.  Clients who wanted to maintain a "cash cushion" a couple of months ago are now ready to "go all in".  The markets are once again a topic of cocktail party conversation.  The Dow gained 8.6 percent last month…its best performance in 20 years!

My clients and readers know that I am a passive manager.  I have been in the game far too long to think that I can predict what the future holds.  My advice now is the same that it was in October and February…stick with your investment policy.  Stay diversified and don't let the current market trends change your long-term plan.

Some people think that a passive manager is a buy and hold manager.  Not true.  It's buy-hold-and-rebalance.  This approach will force you to buy low and sell high…which is, after all, the way to make money in the investment world.  

My firm rebalances client accounts every month.  The rebalance reports in February showed that we were underweight in equities and overweight in bonds…just what you would expect after the big market selloff.  It was very difficult, emotionally, to pull the trigger on the trades needed to buy enough equities to bring the accounts back into balance.  After all, everyone wanted out of the markets.  

But this month the rebalance reports show that, due to the big run in equities, we are overweight in stocks and need to sell to get back into balance.  So, we were buying when everyone wanted to sell and are now selling when everyone wants to buy.  No emotions, just a strategic, proven approach.

So, do I think we're out of the woods now and that it is clear sailing to new market highs?  Hardly.  With all the changes going on in the political and financial worlds, no one can tell.   As an investor, you need to learn to control the things you can control and know the things you can't.  There are a lot of things you can't control.  But you can control how you react to your emotions.