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Blindly Casting Without Purpose

By Mark Simmons

I have a fascination with fishing and have been known to check the fishing reports when I have a free moment. Most times the reports are about camp stories and fishing tales, and once in a blue moon they have a substantial amount of information that can help one become a better fisherman. All in all, they are entertaining to say the least. I enjoy the reports because they do help separate me from the constant investment-related literature I am consumed with. This is why I was all too surprised when I viewed a report from a fisherman explaining that he had “gotten out” of the market and will “get back in” when the debt ceiling vote is over. 

Reading this was very disappointing to me for several reasons. First, my goal of "getting away" had been squashed. More importantly, this person could not have said more of an uniformed statement, posted for many to read and quite possibly act on to make their own mistake with their investments.  

After some consideration, I felt it was quite appropriate to use this example as a lesson for all readers so they can understand how such foolish moves are the very reason many investors’ portfolios underperform in the markets. I have, by the way, let this person know about this article, and it is my hope he will learn a valuable lesson.

If you take away nothing else from this article, the simple answer is that the issues at hand yesterday, today and tomorrow are inconsequential to the eventual long term outcome on your investments. Any decisions made as a result of a disaster du jour are insensible and crippling to portfolio performance. Yes, I know there will always be some disbeliever who says, “but this time is different.” Guess what?  This time is not different, nor is any other time in history.  

One of my favorite books, The Psychology of the Stock Market, is full of valuable insight. Upon re-reading I found a topic that is very relatable to this exact point: “When the market looks weakest, when the news is at the worst, when bearish prognostications are most general, is the time to buy, as every schoolboy knows; but if a man has in mind a picture of a flood of stocks pouring out from the four quarters of the globe, with no buyers, because of some desperately bad news which is just coming over the ticker, it is almost a mental impossibility for him to get up the courage to plunge in and buy.”

While flipping through the pages to find that point I also came across another that puts news events into perspective: “Public opinion is becoming more volatile and changeable year by year, owing to the quicker spread of information and the rapid multiplication of the reading public.”

Just so you know, this book was published in 1912 and the old adage that the more things change, the more they stay the same still applies. 

The truth is, any decision made as a result of something proclaimed in the media (usually out of fear), is purely unwise and reckless. Successful investors are proactive and unsuccessful investors are reactive. While the guy who inspired this post probably truly believes he is being proactive, he is not. His decision is based on the reaction of fear and his inability to cope with it. I’m not suggesting that you not feel fear, but making a decision based on fear, or acting upon it, is certainly not prudent.

In a recent essay by Nick Murray, he points out that, “Financial journalism has to have a constant chain of “because,” for if it ever told the truth (example: “stocks are meandering around for untold reasons, and right this minute there are more buyers than sellers, or vice versa”) people would stop watching/reading it.”

I'm really not trying to blast this one individual, and admittedly, there are plenty of them out there. In fact, the average investor underperforms the market by about 7% annually. That's a pretty large margin considering the average annual return on the equities market is about 10%. Why the large divergence? This underperformance is largely due to investor’s inability to cope with market fluctuations rather than the actual fluctuations.

Furthermore, why is it that amateur investors feel the need to broadcast their investment decisions? Are they looking for confirmation from others that they made the right decision? Or is it quite possible that they want to say, "see, I told you so," if they end up being remotely correct. The fact is, successful investors are not only proactive, they’re quiet. They don't tell others about their chess moves. Their decisions are strategically planned and well thought out. They post consistent returns yet we don’t hear about them. Success in the markets is not measured by opinions, it’s measured by dollars. Simply put, a thousand investors with $1,000 each carries no more weight than one person with a million dollars.  

This brings me to another point. Do these people really think they are smarter than the market or the thousands of professionals who invest in it? Our guy not only dictated when it was time to get out of the market, but also when it was the time to get back in. Wow! In all my years, I've never known or read about anyone who could effectively time the market even once.  

I’m not trying to pick on this guy. It just so happened that the location of his comments, on a fishing website, coupled with the fact that my No.1 one goal is to help investors, coincided to prompt me to set the record straight and quite possibly help people from making such an irrational mistake in the future.  

I’ll stop here and leave you with an analogy. A fishing one seems appropriate. I’ve known and seen many amateur fishermen who launch their boats and aimlessly drive around for places to catch fish. Perhaps they saw someone catch fish in a certain spot before, received a “tip,” or maybe they were lucky enough catch fish at that spot themselves 10 years ago. Or it could be they have a gut feeling based on no evidence at all. Yet, at the end of the day, they spent more time driving and casting than actually catching fish. The only thing they seem to get good at is casting, and they probably end up blaming their lack of success on something other than their lack of preparation. 

Conversely, guides (the professionals) seem to know when, where and why to go to certain spots at certain times. They are the ones who elusively get the job done and are unconcerned with the opinions of the amateurs. Most importantly, they are the first ones back at the dock with ice chests full of fish, while the others trickle back hours later with mostly ice and nothing to show for their efforts. 

Sure, this can be pardoned because it’s only fishing, and people fish for more reasons than just catching fish. But, in terms of the financial portfolios families rely on, can this same lackluster attitude and unproven approach be taken? Shouldn’t the imperative retirement dollars that define our future be left to the professionals?

-Mark Simmons



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