Choose the right vehicle for the road ahead
“People tend to choose what has been successful rather than looking forward long term” Alan Steel, Daily Telegraph, June 2006
“If you don’t start wi’ a plan at the start, how do you know how you’re getting on?” Grannie McKay, 1961
On The Money: Alan Steel
Until the last few days when it took a bath, the US car company Tesla had seen its share price rocket by 780% since the start of 2020. Electric performance, eh? And yet, apparently, the average Tesla share is held for only 10 days. Sounds racy to you?.
So maybe it’s time for us all to remember what makes a successful long haul investment strategy.
It looks easy to just buy stuff that’s hugely popular and hold it until you get burnt…. a bit like the kids’ party games we oldies used to play before smartphones spoiled the fun, such as pass the parcel, or the one where you had to judge when you could sit down just before yet another chair was whipped away. Very few winners there, eh?
US investor Vitaliy Katsenelson explained only last week how to compare investment strategies to cars, mentioning Tesla too, just before the share price took a caning.
How prescient was tha ? He posed the question as to whether it made more sense heading along a road not travelled, into an uncertain murky future, in a cool sporty EV that goes ‘faster than a speeding bullet’, or instead in a well-constructed multi-purpose 4X4 that will cope in all terrains. After all, as Warren Buffett says “in order to finish first, you actually have to finish”
So how about listening to a few nuggets of advice from his wise right-hand man Charlie Munger? Here’s a few…..
Think carefully about risk. Be independent of thought (only in fairy stories are emperors told that they’re naked). Prepare well. Work, work, work and hope to find a few insights. Have intellectual humility. (You’ll be wrong sometimes). Acknowledging what you don’t know is the dawning of wisdom. Allocate assets wisely. Have patience. Resist the natural human bias to act emotionally. And keep it simple. Remember what you set out to achieve.
And as my old Grannie McKay used to say “If something sounds too good to be true, it usually is. She also used to say that “it’s better to light a candle than curse the darkness”.
What I’ve discovered over the years since I started off in 1969 is that it’s really difficult keeping a steady hand lighting that candle when it’s at its darkest out there (like it was in March when lockdown happened, and an Investment Fear/Greed indicator, from 0 to 10, fell for the first time ever to 0)
And right now such indicators are telling us that still three-quarters of investors are nervous and tempted to caution.
That, believe it or not is a good sign. Maybe this time it’s different, but history suggests that while there will likely be twists and turns, there’s plenty scope for optimists to get to the end of their journey in good shape.
There are always Winners and Losers after crises like this one. So just be careful what vehicle you pick for your own road ahead.