Rationally speaking, “buying low” and “selling high” is a known formula for making money on investments. However, many seem to abandon logic when it comes to stocks, buying when prices rise and then selling when prices fall.
The departure from rational thought occurs because investing is an emotional experience. People feel more confident, and thus invest more, when prices are high, just as they feel pessimistic and are tempted to sell when prices are low. Recognizing this discrepancy, successful investors must develop a counter-emotional discipline. TCM will guide you through difficult times in the market when discipline proves the most challenging.
Measuring Your Progress
Suppose you are planning a trip in your car in the near future. You certainly wouldn’t measure the length of the trip using a tape measure. You would use the odometer to gauge the length in miles.
As ridiculous as it sounds to use a tape measure to plan a long journey, this is what people do all the time with their investment journeys. Many investors read mutual fund prices daily, listen to the media, and worry. They are measuring their journeys in inches instead of miles. At TCM, we provide the long-term perspective needed for success.
Mr. Smith and Mr. Jones have homes near a ball field. One day, a switch-hitter came up and, batting right-handed, hit a ball through Mr. Smith’s picture window. A few innings later, batting left-handed, he hit a home run through one of Mr. Jones’ windows. The repair for Mr. Smith’s window was $2700 while Mr. Jones’ window was $300. Because Mr. Jones had nine smaller windows, his loss was less costly.
At TCM, we use diversification to insure against large losses. You can relax knowing that we will provide you with maximum guidance with minimal risk.
Do you know how beginning boaters navigate? It is called dead reckoning. They use a compass, point their boat west, and hope to hit land. Similarly, novice investors select a few securities, forget about them, and hope the investments grow to accomplish their goals. They are “dead reckoning” their investment programs.
At TCM, we navigate our clients’ portfolios and we adapt to market changes. Markets can become scary and can tempt you off course – just like ocean currents and winds force ships off course. Keeping you on course is what you can expect from TCM.
Investing for the Long Run
Imagine that you had to drive from New York City to Los Angeles. You’re in downtown Manhattan hopelessly stuck in traffic. Bicycle messengers are whizzing past. You jump out of your car, sell your car on the spot (at a ridiculously low price), buy a bicycle, and continue your trip to the West Coast.
As absurd as this scenario sounds, investors do it every day when they make short-term decisions for long-term journeys. Stick with a vehicle that will take you to the end of the road.
The Four Seasons
Many investors do not understand the “seasonality of their investments”. Every portfolio will go through cycles or seasons. There will be times when new buds of opportunity will appear. There will be times of prodigious growth. There will be times when we harvest from that growth and, quite frankly, there will be times when the tree will look barren in its winter seasons. Too many investors want to “uproot their tree in the middle of winter”. These investors never prosper. Through patience, TCM will see the season change and new growth appear.
Weather vs. Climate
When my son was younger, I learned a valuable lesson while helping him with his science homework. We were comparing weather and climate, and we finally worked out the difference between the two. Essentially, weather is about the short-term and climate is about the long-term. For example, if you were trying to decide where to build a home, you would probably consider the area’s climate, but not last week’s weather. And so it goes for truly long-term investors. The average long-term experience in investing, like the climate, holds few surprises, unlike the short-term experience, which is more often than not misforecasted.