What Works Isn’t Going to Grab Headlines and Requires Unemotional Investing

The right investment strategy is the one that doesn’t bet on predicting the future, but rather is much less exciting, even boring, and requires far more discipline, and is much harder to do as we humans are not wired to do it.

These early days of 2016 are testing investors like many have never been tested. Larry Swedroe a market researcher and author we respect calls what many investors are doing now to be “catastrophizing”. It means to focus on the negative, missing out on positive employment gains, low inflation and gas prices, which can force that investor to only see doom and gloom and be indecisive, or what we see often, is to panic sell.

Another investor we all should respect and learn from, Warren Buffett, provides some additional useful quotes and wisdom that Larry Swedroe recently included in his blog post “Keep Calm and Step Forward.” Here is some of Buffett’s wisdom to consider:

“Inactivity strikes us as intelligent behavior.”

“The only value of stock forecasters is to make fortune-tellers look good.”

“We continue to make more money when snoring than when active.”

“Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”

“Try to be fearful when others are greedy and greedy only when others are fearful.”

Unfortunately, Buffett learned, and research backs it up that Swedroe discusses in his blog, that while we’d all like to believe we can predict market downturns, there isn’t data to support anyone can do that well over time, and in fact, we find that market-timing is an indicator for doing poorly in investing. Missing just a few days in the market dramatically lowers investment returns. Dimensional data tells us that over a 45-year period (1970-2015), if we missed the best day in the market due to timing, we reduce our annual returns from 10.27% to 10.01%. Miss 5 of the best days in that period, and annual returns fall from 10.27% to 9.24%. Miss 25 of the best market days and returns fall to 6.87% annually.

Overall performance plummets by missing just a few days. It gets worse the more days we miss. Markets reward discipline and punish impatience.

Recent Posts
Search By Tags

TruNorth Capital Management, LLC (TruNorth) is an investment advisor registered and regulated by the Securities and Exchange Commission (SEC). All clients and potential clients have access to important information about our business methods, fees, professional qualifications and all other pertinent business information. By using this website, you accept our Terms of Use and Privacy Policy. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in loss.

Regarding the interaction TruNorth or its representatives may have with clients and/or potential clients in ERISA-covered plans, including SEPs, SIMPLEs and non-ERISA retirement plans that are subject to Section 4975 of the IRS Code, including IRAs, Keogh plans and Solo 401(k)s (collectively "retirement plans"), TruNorth may provide non-discretionary investment advice to a specific investor, recommending or suggesting the acquisition or disposing of securities or other investment property in a retirement plan and/or recommending a rollover from a retirement plan to another. During the course of this interaction, TruNorth meets their requirements of a "level-fee fiduciary" and adheres to the Impartial Conduct Standards that require TruNorth to a) provide advice that is in the client's best interest, b) receive only reasonable compensation for its advice and; c) not make materially misleading statements. 

© 2017 TruNorth Capital Management, LLC