The investment philosophy of our Serious Money Approach rests upon 3 key principles:
- Faith in the Future
- Problems get solved even if we can’t predict how it will happen.
- Patience
- Problems get solved even if we can’t predict when it will happen.
- Discipline
- Doing what almost always works and not trying something that hasn’t.
I want to illustrate how the three principles work together to form our unifying approach to investing. The first part of the illustration involves a bit of work on your part: think of a recent news events that may have caused you to worry about your investments in the stock market. I’ll try to jog your memory with some of the big items from the past few years that may have hit home:
a) the downgrade of US government bonds
b) the plunge in oil prices
c) the Ebola scare
d) the China economic slowdown.
I’m sure there are others as well that may have caused you to lose sleep in the recent past. Now, as you hold on to the worry-thought that caused you great concern, ask yourself which of these two 4-word phrases best described your reaction to the worry-thought:
This Time Is Different
or
This Too Shall Pass
If your reaction was “this time is different,” ask yourself if it proved to be true. Did it turn out to be different? If you had done something new with your investments, would it have worked out? Sir John Templeton, one of the investment world’s original gurus, is said to have uttered that the four most dangerous words in investing are “this time is different.” Yet, it is almost always tempting to believe that today’s crisis du jour is different and will change everything. Of course, if we conclude that today’s crisis is different this time we are most likely to try to do something about it, such as trying a new-fangled investment vehicle designed to avoid the disaster or perhaps even sell our investments altogether.
Given that over the long run the trend of the market is upwards, then exiting the market based on a belief that it’s different this time will necessarily result in either missing out on the long-term uptrend (at worst) or buying back in at higher prices (at best).
I’m guessing that whatever is the worry-thought you are thinking about has, in fact, passed (and if not yet, it will pass). The mantra of our third principle, Discipline, is “this too shall pass”. It is this belief that guides us to do strategies that have always worked. If this time isn’t different and it too shall pass, then why try something that has no history of working?
Working our way backwards to our second principle, Patience, if we believe that this too shall pass, then we need not be concerned about when it will pass. It is enough to believe that it will pass at some point in the future so that we can have confidence in the discipline of doing what has always worked.
Finally, working our way back to our first principle, Faith in the Future, if we believe that this too shall pass then we need not be concerned with how it will pass. It is, again, enough to have faith that it will pass because they always have passed in the past (please excuse the word play).
Which 4-word phrase resonates now? This Time Is Different or This Too Shall Pass?
Jeffrey Ross
Registered Investment Advisor
FORWARD LOOKING STATEMENT DISCLOSURE
As a Registered Investment Advisor, one of our responsibilities is to communicate with clients in an open and direct manner. Insofar as some of our opinions and comments are based on current advisor expectations, they are considered “forward-looking statements” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our comments and we have confidence in our opinions, actual results may differ materially from those we anticipate. You can identify forward-looking statements by words such as “believe,” “expect,” “may,” “anticipate,” and other similar expressions when discussing prospects for particular events and/or the markets, generally. We cannot, however, assure future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, information provided in this letter should not be construed as a recommendation to purchase or sell any particular security.
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