This month’s blog was slightly delayed as I was babysitting my four-year-old grandsons in Vancouver.
My instructions were threefold:
1. Make sure you run them.
2. Keep on running them.
3. Don’t stop running them.
Recognizing I was alone, I had to develop a plan and stick to it. Wake up before them, shower and prepare breakfast. Wake them, feed them, dress them and walk them to school. Come home, clean up the mess and do the laundry. Back to school, walk them home, prepare dinner and feed them. Finally, get them ready for bed, read to them and hopefully after all that running they fall asleep as I was not far behind. My plan worked and it was not a hardship as, in the not too distant future, the tables could be reversed and they will be looking after me.
What has this got to do with investing? Basically, the lessons are just as simple as those for babysitting: in order to succeed at the task, you must have a well-conceived plan, and be prepared for any contingency. The added advantage of a well-honed investment plan will also ensure that in the event that anything should happen to you, your successors need not immediately grapple with investment issues. Since these will already be in place, you will have dealt with every contingency. We found out in November how important these principles are: a proper plan (investment strategy) that you stick to will get you through those difficult emotional times.
Following the US election, we saw a good old-fashioned panic in global markets. At one point, S&P 500 futures were limit down, a 5% decline, gold was up over 4%, 30 year Treasuries were up 1% and the Dollar Index was down 2%. What happened next? Literally everything would reverse course. US stocks rallied (eventually to new all-time highs), the Dollar surged, gold declined and Treasuries sold off (yields spiked). It was as if the panic never happened.
One lesson that we should all remember from this is that panic selling is rarely rewarded. The markets and their initial reaction to events are not always right, far from it. They can be very wrong because investors are acting not on information but emotion. We had already learned that back in June after Brexit. Quoting John Boyle, “Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes”. A list of the few things to do right would include managing your emotions, avoiding fear and greed, controlling expenses, properly diversifying your portfolio, maintaining patience and a long-term perspective, controlling your risk and having a long-term plan.
Wishing you all a Merry Christmas and a Happy New Year.