He Who Does Less Wins
Why does the chain of so-called problems faced by investors never seem to end?
Don’t believe me?
When was the last 6-24-hour period when we were told there were no problems lurking out there that weren’t about to radically impact our future, our lives, our interests, or our family?
And they all seem to require immediate attention.
The picture of reality from headlines is simply not reality.
The cost of all this misinformation is best demonstrated by example: In the last week alone, we’ve met with a number of new potential clients, all of who are invested nearly 100% in cash; and clearly oblivious to what’s really going on around them.
Now here’s my best effort to replay one of the actual conversations we had with those potential clients noted above:
Me: “Bob, we noticed that your positions in your retirement account are all in cash or 90-day T-bills and have been that way since August. How come?”
Bob: “Well I think we are in a lot of trouble…”
Me: “Why’s that?”
Bob: “Well, you have the trade war, debt, Trump, this Mueller thing. Then you’ve got North Korea, earnings are surely peaked - and then gosh knows what the Fed is going to do. I just felt last summer that the markets would correct.”
Me: Fantastic! They did. In fact, we had the shortest bear market - technically - on record. It seems to have (so far) lasted about a week. So, you got the correction you were looking for. Now, what did you do on Christmas Eve morning with all that cash?”
Bob: “What do you mean?”
Me: “I mean, well, you positioned yourself for a correction, and then it unfolded. And now it’s been rebounding and rebuilding from those lows for 90 days… So, what did you do?”
Bob: “Oh, well I am waiting for things to clear up.”
Me: “Really? What does that look like for you? What would make things feel or appear cleared up in your mind?”
Bob: “Well, you know we need to end this trade war, get the debt under control, stop these deficits - probably cut a few other deals to soften the global political tension, Brexit needs to get straight - and then we got election campaigns right around the corner - and that won't be pretty.”
Me: “Bob, we are 2-3% away from the old highs and almost 20% off the panic lows of Q4. While many won't admit it, we are closing in on (technically) a brand new bull market. When those problems you noted - which are all real - get ‘cleared up’, there will be more problems; some even scarier than the ones you listed. So, what then?”
That’s when bob shrugged his shoulders…
Folks, Bob is stuck in no man's land. That’s the spot between being afraid and the terribly numbing feeling of being "secure" in cash, so much so that he is blinded to what is happening around him.
And Bob is not alone.
Records were set during Q4 for outflows from all investment categories; Funds, ETF's, stocks - everything but bonds and cash were sold.
Truckload after truckload of 14, 15 and 16 P/E things were dumped out the window en-masse in return for standing in line to bid 41 times earnings for Bonds, and locked in for 10 years with, eh, let’s see, ZERO upside.
A Constant Fear of the Future is not a good way to deal with the facts we must all face as investors, to which I include a partial list of those facts below - designed to save you the time needed to Google "Facts we must all face as investors...."
- There will be periods - sometimes lengthy - where things suck
- There will be positions in your account which "do not work", which will also be for periods of time that may seem lengthy
- The positions noted in point 2 above will change from year to year
- Owning stocks in companies does not mean those companies will operate the way an analyst sitting quietly in his or her office working on spreadsheets - many miles away from the business operation in question - thinks it should
- If companies do not abide by what an analyst thinks - it does not mean the stock is worthless - even when algo-trading suggests otherwise, and
- If you make the mistake of checking your account balances each day it will make you miserable.
Here is a good reminder of the way it really works.
And by the way, as you peer into these next two graphics remember that many people have been President during the time noted, many disasters have unfolded, many bear markets have happened, and basically every single thing that has been burned into our brains to keep us afraid of the future.
Now picture this, which covers the "volatility" over the last 83 years:
Too many investors assume - or have been wrongly taught - that this stuff is supposed to be easy.
And worse still is that they assume if it’s not easy then there must be something wrong and they need to tinker with it or try to fix it.
Building wealth for your retirement needs (and to enjoy those years of your life), and all the while providing a sense of security is not easy.
But he who does less tends to win.
Simplifying things will be the most difficult thing you will ever do to your investing plans but simplify you must.
Otherwise, you’re like a dog constantly chasing its tail.
And that does little for the dog but use up his energy and make him dizzy and angry.