INSIGHTS for INVESTORS by Tim Mitrovich
Being an investor is tough, but then again maybe it should be. After all, given time it provides the opportunity to help one build considerable wealth. And while it doesn’t require much manual labor, that doesn’t mean effort isn’t required. When it comes to investing the effort exacted comes in the form of emotional challenges from facing down our own greed and fears.
When it comes to the latter, investors face it in two primary ways: 1) market volatility and 2) having to embrace change.
Volatility is NOT Risk
Ultimately, an investor’s’ greatest fear is losing all of their money and/or ability to provide for themselves and their family. Coupled with the common confusion of equating volatility with actual risk, many investors remain too conservatively allocated, panic and sell low and/or refuse to evolve their strategy (the topic of Ray Dalio’s great piece below).
When markets shudder it’s understandable that investors want to remove themselves from the situation, but much like turbulence on a plane it is not fatal, but jumping from the plane would be. And while investors could avoid volatility, and for that matter traveling too, in either case doing so won’t get you very far.
In today’s world, the best example of this is classic bond investors that refused to change as interest rates plummeted to below 1%. Investors that stayed the course fell prey to embracing previously low volatility investments and past performance causing them to not evolve and as a consequence have now both lost money on those holding in most cases and lost out on considerable returns from many other investments without needing to even increase their equity allocations.
While Dalio’s piece focuses on the challenges of today’s bond market and impending inflation, the real message is the need to adapt and evolve as an investor. As I discuss in the video above, one reason sports teams have trouble beating a team a second time is it’s hard to change what worked before for the winner, while the loser knows they have to adapt.
As an investor, or an athlete, the goal however is to KEEP WINNING! This means continually challenging oneself and letting go of some of your previous “winning plays” if you want to win the NEXT play/game/investment.
This too is hard. Overcoming the emotional pull of what has worked before is very real, and the reason the warning comes on so many investments that “past performance is no guarantee of future returns.”
Even many advisors fail to embrace the necessary change to keep their clients properly positioned.
This happens for many reasons: a) some are too lazy to put the work in to uncover hidden dangers as well as new opportunities, b) many advisors are more focused on their own retirements and/or egos, and/or c) they become too risk adverse and find it easier to hide behind what’s worked before rather than position for what’s ahead when working with clients.
The result of such behavior is just like the band that never changes their tune, is trapped by their last hit, and becomes a one-hit wonder.
In closing, as investors we can’t be afraid of tough times and having the courage and humility to change if we want to keep winning and producing “hits.” Here at TEN Capital we know these challenges apply to us too, and our promise to you is to do our best to overcome them every day to try to keep you at the top of whatever ranking/charts help you get where you want to go.
We hope you all have a blessed Easter weekend,
Tim and the team at TEN Capital