‘I didn’t let anything get to me.’
I met a guy who’d built a very successful fintech business.
When asked what was the secret to his success, that was what he said. Despite all the trials, he failed to get riled. He managed to avoid taking anything personally.
And I realised that, too, was the secret of being a great investor. Being in control of your emotions as much as is possible.
The most successful investors navigate risk. When markets head south (as they did for much of 2022), even the most reasoned and smart positions can get hit.
I recall a friend telling me about 2008.
‘I was a financial adviser. I’d been buying equities since I was virtually a kid. When I saw around a third of my wealth get wiped out, I began questioning my judgment. I began questioning everything.’
Source: McDonald’s Investors
In hindsight, McDonald’s [NYSE:MCD] was one of a handful of resilient, large businesses that managed to hold their stock value through the Global Financial Crisis.
Yet, when the Covid-19 lockdown crisis of 2020 arrived, it plummeted 32%.
Every disaster is different.
Covid-19 saw a sudden, short emergency crunch of values. Then a swift rise on the back of monetary support. Lasting into early 2022.
It was Milton Friedman who once remarked that dealing with inflation was like an alcoholic dealing with stress:
‘When you start drinking or when you start printing too much money, the good effects come first, and the bad effects only come later. That’s why in both cases there is a strong temptation to overdo it—to drink too much and to print too much money.’
American economist Milton Friedman and Ronald Reagan. Source: Liberation School
As humans, we tend to overdo most responses.
Fear kicks in, and we overcompensate on the downside.
Greed comes back and we overfeed on the upside.
Then a reckoning comes.
Having an understanding of yourself, your goals, and a strong set of values can help you get through without making so many mistakes.
If you’ve been reading me for any length time, by now, you probably agree that consistently buying value in the markets is the best way to build a portfolio that will enable you to retire. Well, buying value — ideally with some strong dividend income (if long-term holding is the strategy).
The option to retire early
I had some friends visit recently from the island of Jersey. They have a dream of being able to retire within a decade. (They are currently in their 40s).
One of their concerns was the low yields on property — where they’re probably mainly invested.
A good portfolio of stocks, I knew, could potentially enable these dreams at a much faster clip.
But then there is question of managing your mind through the inevitable drawdowns. Stocks are more volatile than property values. Because they’re priced daily and at the mercy of a market that tends to overdo values both ways.
Though it needs to be said: property here in New Zealand has fallen in value deeper than our equity portfolios this year.
So, what is the best way to become a steady and prudent investor who can protect or profit from the worst exaggerations of the market?
Experience through a few different market cycles help.
My friend who suffered emotionally (and financially) through the painful GFC stayed his course. And now has a portfolio he can retire on — even though he is still somewhat from retirement age.
Perhaps he, like I, regrets he didn’t buy more during these dark times.
We have only learnt this recently.
More than anything, developing ‘navigation skills’ is key.
Pip (foreground) of Great Expectations. Source: First Things
One of my favourite novels is Great Expectations by Charles Dickens.
The hero, a poor orphan named Pip, ends up being gifted the fortune of a convict after helping him in the Kent marshlands. This money paves the way for Pip to become a Victorian gentleman and navigate an extremely complex world.
In the process, he becomes arrogant and makes mistakes. Yet he learns from those and finds grace in forgiveness.
It is a coming-of-age story as he discovers his true self and his values.
And the story asks the question whether he can prosper while staying true to himself and those values.
It is a story in the back of my mind these days.
Investing and life are tough.
Indeed, staying true to whom you are and your values can provide a steady light across shaky ground.
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Editor, Wealth Morning
(This article is general in nature and should not be construed as any financial or investment advice. Vistafolio services are for Wholesale or Eligible investors as defined in the Financial Markets Conduct Act 2013. Please request a free consultation if you would like to discuss your eligibility.)
Simon is the Chief Executive Officer and Publisher at Wealth Morning. He has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge-fund industry in Europe. Before this, he owned an award-winning professional-services business and online-learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book, and manages global share portfolios.