The stock market is a machine that will eventually humble every single one of us. It doesn’t care what you think it should do. It has no alignment with your political, social, or environmental beliefs. It is simply a mechanism for transferring your hard-earned money into an asset that will fluctuate over time. Sometimes that means higher and sometimes that means lower.
The other day I was having a conversation with a client to recap 2016 and talk about what our strategy is for the following year. I didn’t use any flashy slide decks. I didn’t talk about narratives, themes, or projected outcomes. I simply told them we are going to keep using the same sensible and balanced approach as any other year.
They were comforted by this philosophy. They told me the one thing that stands out from their prior advisor is that I don’t have a vested stance in being right all the time. They love that I admit when an investment is not going in our favor and move on to other opportunities.
Confidence will only get you so far in this business without a measure of humility and flexibility to go alongside it. Total conviction in a solitary result without any sense of risk awareness or a definable strategy is a recipe for disaster.
That was a hard lesson to learn. I watched other advisors in the early part of my career stake their entire reputation and credibility on a specific event or outcome. They would burn down themselves, their clients, and the firm rather than admit to being incorrect about a market call. You see this every day on TV too.
- “This is the top.”
- “Sell everything.”
- “The bear market starts when we breach _____ level.”
- “Oil can’t possibly go any higher/lower than ______.”
- “Rising rates are going to destroy ___________.”
- “__________ is the next big thing.”
- “__________ is the next Warren Buffett or George Soros.”
The asymmetric risk of acting on these types of statements is off the charts.
This is also how many advisors raise money. They prey on your fears by embellishing hidden risks that only they understand how to avoid. They bolster their ego by talking about calling tops or bottoms based on “skill” or cherry-picked statistics. They embellish investment opportunities they have uncovered that the rest of the world has yet to identify. Ultimately, it’s marketing over substance.
In my experience, the best path to investment success isn’t an unshakeable conviction in a narrative. It’s accomplished through hard work and staying in your lane. Sometimes the most difficult parts are just avoiding all the noise and sticking with what you are good at. Things get ugly when you start taking wild swings in the dark to try and out-think the crowd or prove a point.
There are many ways of achieving the same outcome with your investment portfolio. However, a small dose of humility is a sensible way to ensure you don’t get caught off guard by thinking you have it all figured out.
Disclosure: FMD Capital Management, its executives, and/or its clients June hold positions in the ETFs, mutual funds or any investment asset mentioned in this article. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.