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Post Date: Tuesday, July 17, 2018 |
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Blocking and Tackling
Hot summer days bring back strong memories for me. That early summer morning smell strongly reminds me of summer football practices—heat and coaches hollering. I have many memories of coaches lecturing about the importance of fundamentals. “It is execution of the basics that wins football games,” they would say.
They were right, and that idea translates to many areas of our lives. Very often it is the execution of the simple things, day after day, which yields meaningful results. Rarely is it the “big play” that wins the game, even though we all want those moments in our lives. Success in life is had from doing the simple things well, day in and day out.
This is, of course, true for investing. In this issue, I want to discuss the importance of those fundamentals; the “blocking and tackling” of investing.
Markets are Biased.
“If it were easy, everyone would do it.” Most of us believe this is true—that difficult things tend to deter people is fairly self-evident. Logically, then, this saying must have the corollary: “If everyone does it, it must be easy.” In other words, if most people invest (and most people do) it must not be difficult! Investing is not difficult because markets are biased; they tend to move upward over time.
This simple fact is very powerful—it is why we all use markets to grow wealth. If they did not tend to go up, or required some arcane knowledge to “beat,” very few of us would participate. The first basic principle of investing is to be patient, and to stay invested long term. Patient investors can reap the rewards of the market’s upward bias.
Easier said than done, especially with the financial media constantly warning of impending doom. It is far easier to submit to the fear peddlers and jump in and out with the whim of the day. It takes discipline to patiently maintain your strategy. As we discussed, however, success is had from consistently doing the simple things well.
Time is Powerful.
While no one knows for sure, it is estimated that Leonardo DaVinci took seven years to finish his famous Mona Lisa. Seven years—to finish one painting. Most anything worth doing takes time to do.
The second basic principle is that time is an investor’s ally. More than skill, more than picking good stocks, it is time which best positions your money to make money. The mathematics of finance are such that for every linear increase in time (say, by increasing time by one year), you increase your final wealth exponentially.
We have, in these pages, often discussed our short-term views on the economy and markets. No doubt, your current advisor does the same. All of this is not to discount the importance of understanding the risks to which your portfolio is exposed. Further, we do believe that an understanding of economic fundamentals can add value to an investment portfolio. However, that value added is on the margin, and even a money manager’s skill is predicated on doing these two basic things right. Allying with time and taking advantage of the market’s upward bias.
It is hard to do. Almost more valuable than an advisor’s skill is his/her role of coach—keeping you disciplined, on plan, and ensuring you execute the fundamentals well.
We would all do well to keep “blocking and tackling” top of mind. ■ |
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