I spent most of today at my kids school for father’s visiting day. It was great to see the kids in their “natural habitat.” However, I confess that by the end of the day I was exhausted. Perhaps it’s because I love what I do, but I found the difficulties of one day of high school more challenging than my normal daily life. In short, I lapsed into survival mode and realized there are some decent comparisons to surviving the markets.
- Everyone is worried about themselves – It’s easy for teenagers to assume everyone is staring at the newly evident acne on their face, or laughing behind their back at one social mistake or another. The reality is that everyone is much more worried about themselves than they are anyone else. Rude comments are often coming from feelings of insecurity rather than superiority. Market participants largely function in the same way. Professional investors are competitive, but largely focused on their own performance. Sell-side professionals (including those covered by the fiduciary rule) are more worried about their own business (and compensation) than they are about helping their customers get better risk adjust returns. How much of this business is simply about gathering assets? A lot.
- The slippery slope of popularity – I confess I still don’t understand the social life of teenagers. Changes in friendships, social groups, and popularity can occur seemingly for no reason. How stocks get valued seems to operate largely the same way. Companies are popular … until they aren’t. Markets seem to care about something until they don’t. Does anyone believe the true value of a business is as volatile as its stock suggests?
- Know thyself – High school seems to get easier as you get a better sense of yourself. Once a comfortable place is found, energy can be focused on developing talents and generally having fun. The available investing universe is so large and diverse that focus is required. In addition, all investors go through difficult patches. Perhaps the surest path to poverty is trying to jump from one winning strategy to another. Typically, that’s just asking to buy high and sell low. We should always be learning and evolving, but I believe we should stick to a strategy that is best suited to our temperament. If a value investor starts chasing momentum they are likely in trouble.
I have a senior and a sophomore in my home. I’m proud of both of them. I’d love to tell them the challenges they face will be over when they graduate. It’s more correct to say the lessons they are learning while confronting their challenges will be even more valuable in the future!