Investing Success Defined, pt3

Embracing volatility

Taking this investing thing to the Nth degree, to its end, the investor must at some point embrace and even enjoy volatility for him or her to be truly successful. This means having the ability to live with both more and less than expected and still being content and at peace.

Returns and Volatility are inextricably linked. We must never forget this. You will not get a return in your investments greater than the rising cost of the things you buy if you are not taking on some level of uncertainty. For folks who are closer to needing their retirement account, we can diversify away much of this uncertainty, but some level must still exist or you will be losing money against inflation.

All of us would like to have double-digit positive returns year after year. We know, at least intellectually, that we might possibly encounter down markets as well. But what we rarely do in our heads is put these together as necessarily linked. Most investors, and I think even many of my own clients, want to think that it’s possible to get the positive years and avoid the negatives. Indeed, we all know someone who has said they “got out just in time.”

And that is all the proof we need that our desire for stability is strong. We see amazing things happen all the time in the movies we watch. We read about them in our novels, and we see them regularly in the lotteries and sports reel highlights. Amazing things are possible. Wouldn’t it be amazing if I could time things right this time and miss the next decline? You bet it would. And someone will pull it off just like someone will win the lottery this week. But I’ll still advise that you leave both strategies out of your investing.


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We Will Win Again.

At our next event we’ll talk about how to win with Capitalism. Let me remind you how we won last time. I wrote this in August of 2011:

In October of 2007 the DOW was at 14093, and everyone was happy. By March of 2009 the DOW had hit bottom in the 6000’s. Few were happy. Many were panicked. But my clients remained disciplined. We rebalanced.

By January this year [2011], as the DOW struggled to reach 12000, still 15% off its previous 2007 peak, my clients had all of their money back. How? you ask. How does one get back to 100% when the “market” is only 85% of what it was at its peak?

The answer is simple math and a proven investment strategy. . .

  1. We own over 12000 companies in 44 countries in 17 distinct asset classes that are engineered based on their dissimilar price movements or low correlation. In other words, you owned emerging markets and microcap stocks before they doubled in value rather than having to chase after the return.
  2. We bought more shares on the dips through our rebalancing efforts all the way down the hill. In other words, while others were panicking, we were buying their lower priced shares. Slowing and quietly making strides in your portfolio but adding to the number of shares you own.

So, when the rebound came, you went up the hill with more and better shares than the “market” (the DOW).

We’re going to do the same thing this time, and you are going to win again.



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Investing Success Defined, pt2

Consistently Content

Earlier I said that being a successful investor means at least two things:

  • That you get market return, net of reasonable access fees.
  • That you get what you expected to get.

If as nn investor you get market returns and you’re emotionally stable along the way, then from an investing standpoint you’ve been successful. To aid my clients in the pursuit of this reality, I have invested heavily in reading, research, and coaching events aimed at helping them with their understanding and expectations. These events and my reading will generally take one of two parallel paths, both of which are important in getting the results we want.

First, we want to understand the stock market and our portfolio.

Secondly, we want to understand why we invest. Getting at the why side of the equation is important from time to time. In that vein, consider two statements that I think are essential to achieving success as an investor.

1. Almost everything in your life is more important that your investment balance.

Save as much as you can. But don’t put your trust in it. Learn how to be a prudent and good steward of your investments. Then live a generous life.

A friend of mine told me an interesting fact about the fortune 400 club in the United States. This is a group of what used to be millionaires (and is now nearly made up entirely of billionaires) who have a really hard time enjoying their wealth. They don’t like to spend their money on things that won’t add to their net worth figures at the end of the year. Once on the 400 list, they want to move up. If they break the top 200, they want to break the top 100. Once in that group, the top 10 is within reach.

This is not a satisfying pursuit. No one reading this post is likely a member of that club today, but the message is still the same. Don’t be afraid of setbacks. Some of these will be market driven (see the next point) and some of them will be relationship driven. One of the best returns you will get on your money will not be financial. Spend your money on what and who you care about. Don’t be wasteful, be wise. Don’t be a spend thrift, making yourself unnecessarily a burden on the state or your loved ones, but don’t be miserly either. Be generous. You will not take any of this with you. Give while you have breath.

2. You absolutely must endure market setbacks if you want to gain market returns.

The two cannot be separated. Indeed they never have been. Every investor who has ever achieved the markets average return over decades has also endured the down years. In fact, it is the down years that give you the positive years.

You might say, “I know, I know, I don’t have the ‘right’ to experience the good years if I don’t endure the negatives.” But that’s only half true. The positive years are a direct result of the negative ones. ROI, return on investment, is a cost of capital story. If you are lending your money to the bank for a year – this is called a 1 year CD – that loan you make has a cost associated with it. This cost is market driven and is very low (today, under 1% apr). If you want a higher return, you must give something. Like what? Well, you could give more time. A five year CD pays over 2%. This return is better than the 1 year CD. But then you can’t get your money for 5 years without paying a penalty. See how that works? What else could you give? Well, you could put $10,000 into starting your own business. If you work hard and you succeed, you might see a 20% return or greater on your investment. This is far from the passive return of CD’s but 20% is a much higher reward as well. There is no guarantee that your business won’t fail. You could lose all of your money – indeed, many hopeful entrepreneurs have.

And then there’s the way of harnessing the entrepreneurial benefits without all the risk and headache. The stock market is the best passive wealth creation tool mankind has ever had. Learn how to harness it. Learn that it is not perfectly tame. Learn that in the end the down years give investors the right to enjoy that nice level of return.




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I Call That a Bargain

In less than 30 days the DOW has seen a retraction of more than 1000 points – a 6.53% decline in less than a month.

Mark Matson and I call that  O P P O R T U N I T Y. . .

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You’re Capitalizing on Volatility

Dear Client,

This morning I received the following email from Matson Money. I wanted to be sure to pass this along as a helpful reminder as you endure these weeks of market decline:

“As part of our service to you, Matson Money reviews your clients’ accounts for rebalancing each quarter. As a courtesy I wanted to inform you that Matson Money will be rebalancing your clients’ accounts over the next few days if needed. We wanted to make you aware of this so there is not a concern if you see activity in some of your clients’ accounts. If you have any questions regarding this procedure, please contact your Investment Services Team.”

At times like these you need to remember a few things:

  1. Market volatility is normal. This happens all the time.
  2. We are capitalizing on this volatility by selling off the small gains where we get them (i.e. small emerging markets stocks are up 8.4% from January through end of September) and purchasing the declining classes.
  3. You are picking up shares of lower-priced stock every time rebalancing occurs as a result of market declines.
  4. In the end, more shares is the key.

While others are panicking and selling their ownership percentages, you are growing your share.

At our next World Class Coaching event, as always, I will be answering your questions. Please make plans to attend if you haven’t yet. Space is limited. See details below and call or email today.




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