Mind
games
The basic premise of
successful money management differs somewhat from the conventional
definition of simply investing on Wall Street. This subtle delineation is the cause of so
much investor consternation when things somehow stop going their way. The former is the execution of risk
strategies that protect investors from the vagaries of time, while the latter
is nothing more than a roulette wheel approach to generating capital gains.
Why is the distinction,
subtle as it is, so important to talk about?
Because without a methodology and a specific plan for avoiding failure,
it is difficult if not impossible to quantify the opportunity you seek.
Shall we agree that
investing is a daunting undertaking regardless?
At best it is an exercise in the expression of hope we all harbor about
making good things happen with our money.
But it is also critical
to assess how that investment landscape performs over time, in what sequence,
and in what degree of duration. Stocks
are sometimes "trickier" than bonds; bonds somewhat more effective
than cash; and the blend of all of these asset classes, including complex
delineations within those categories, determines the probability of a
successful investment outcome over a specific period of time.
Thus, those who solely
focus upon tech stock gains, or municipal bond-only portfolio return, or who bury their cash in a tin can in the back yard are only playing with a few cards in the deck
of a myriad number of other options available to them.
It's not unusual to be
swayed by the sales presentation of a "shiny" new idea, but the
ultimate game-player knows where and when to locate those "special
situations" opportunities, how to put in the hours of research, calibrates
the odds and plans for unknown circumstances which might knock him off course,
just in case.
The compromise,
therefore, is to turn off the 24 hour cable business news; factor in your own
personal dynamic; develop a macro top-down attitude about the world in which we
live; and seek solutions to problems with which we identify that also have
capital gains potential for the long term.
Even still, there are no assurances of a positive outcome.
Exceptional investment results are not only just integers on a page, but
our perceptions about those expectations we bring to the
undertaking.
A frenzy of one-off,
risky non-strategic behaviors is the surest way to ensure investment failure.
Guard
the jewels
Should you care about
these methodological distinctions I'm writing about? "What
is my annual return?", you
might respond. Well, when things are
going well in your portfolio, the answer is quite simple: the number is the number.
But what about times of
unique performance perversion? 1978, 1986, 1993, 1999, 2001, 2008. Each of those years represents a severe regression in the optimism of bull-only investors and the
performance of financial assets. Do you
recall how hard it was to recover from losses of over 25%. Or 30%.
What about the tech (dot.com) wreck of over 90%?
Every era has a
difficult regressive phase. That is the
nature of cyclical investing. If you
were one of the investors who got punished in the past for failure to plan,
then you might still be licking your wounds today, if you weren't' fortunate
enough to have had the patience to recover after a decade or more.
Methodology and
discipline are the antidotes to the "shiny new coin" approach to
chasing a dream.
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