"Leave something in it for the next man…"
Conceptually, investing is a simple subject as there are only three things to worry about: the starting point, the exit point and the management in-between. The problem of course is the gap between concept and quality execution. Like the quality centre forward who scores the most goals- or the cool gold medal archer, the winners understand calm. For now, Mondial’s stock answer to gross market uncertainty remains the same: “stay calm, stay invested”- and “you only lose by selling”.
Let’s review the basics- start, exit and management in-between:
1. The starting point.
Making money actually isn’t as important (for improving lifestyle) as improving purchasing power. So a 3% return against a 4% inflation rate is not as good for the quality of your life as a 2% return against a 1% inflation rate. Setting benchmarks against the rate of inflation is a good starting point for considering our investment starting point. We need a benchmark – Ziegler “if you don’t have a target wat are you aiming at?”
Mondial’s recent “Academy” sections have pressed the theme that current market traumas are certainly medium term buying opportunities - “when there is blood in the streets –invest” as the Rothschild mantra goes.
Understanding a good starting point relies on two concepts:
Firstly, making money requires the buying of an asset at a low point and selling it high (buy low sell high). Easy to explain - difficult to find believers!
Secondly, mature markets have a high degree of “reversion to mean” which implies prices eventually get back towards fair value (last week: Eugene Fama and EMH). When prices are not trusted (like now) they can be irrationally discounted, and when there is too much confidence they can be over-priced.
Again…. This is a good starting point for those who are able to make investment decisions.
2. The management in-between.
Today’s decisions would depend heavily on your current underlying asset collection. If it was a good portfolio in January- it is probably a good portfolio today. Just undervalued.
The challenge in this stage is managing personal appetite, specifically, “tolerance to loss” into the asset allocation. A really good reason for today’s nervous investor to meet their financial adviser.
Happy with January? Then follow the stay-at-home mantra and stay calm, stay invested. Not happy with March valuations? Meet your adviser- de-risk but stay invested.
3. The exit point: “LEAVE SOMETHING IN IT FOR THE NEXT MAN”.
The principle of letting the next man “win” a low price is based on the concept that you are selling after beating your benchmark (and that is why our first bullet is important).
In the same way irrational fears prevent us from buying low- they also prevent us from selling high. So our jargon for the day “leave something in it for the next man” is about not holding an asset too long. If the asset price continues to rise after the sale you have made your profit, why should you be worried by that? That would mean you have left something in the tank- but-so what?
The conclusion for our day is that staying calm is a performance necessity and especially at execution time- for investment purposes: the start and exit points.