A number of years ago I made the personal resolution to read more. I would say that I have always been a bit of a casual reader, but I never committed to it until about 5 or so years ago. One of the main reasons I committed to reading more is that I wanted to have a better perspective on other people’s opinions and experiences. I have built my business and professional career around understanding that I don’t need to have all of the best ideas to be successful, but I do need to be open minded to hear other people’s opinions and ideas. Essentially the goal is to surround yourself with people that are smarter than you. With this philosophy comes a different challenge which is that you may find yourself without direction and flip flopping from idea to idea as they are presented. Open mindedness is certainly a good thing, but direction still needs to be set and committed to. This applies not only in business but also in investment.
I recently came across an article in the Globe and Mail titled “As an investor, don’t be afraid to flip-flop, and how alternative data could reap rewards for your portfolio” by Scott Barlow. The article discusses in detail how investors tend to become emotionally committed to a company they have invested in, similar to how they would become biased towards a sports hero or a entertainment icon. I completely agree with Scott on his point related to the emotional bias of investing and how that can be dangerous as it may cause an investor to hold onto a losing investment and incur opportunity costs. Although I agree with Scott on this point and how dangerous the emotional bias is, I think that he misses the opportunity to point out that what is even more dangerous in investing is chasing.
Do you want to know why investing is difficult? It’s the same reason that sticking to a healthy diet or getting into a workout routine is difficult. It requires discipline in sticking to a strategy that fits your comfort levels. When someone is trying to commit to healthier eating the temptation to break your discipline is constantly prevalent thanks to modern media. Sticking to a successful investment strategy is no different. Our own human nature has trained us to avoid pain and follow what seems to be a perpetually successful path. This is why investors tend to buy at the exact wrong time because they are buying something that has “proven to do well”. There are many great investors out there with different strategies which have led them to be successful. Most of you will know by now that at Endeavour Wealth, we focus on a strategy similar to the one behind the success of Warren Buffett and his partner Charlie Munger. I summarize our strategy as follows: we only buy high quality assets and we make sure that we don’t overpay for them. But there are many other ways to succeed in investing and so there is always temptations which are trying to pull you away from your strategy for one that may be working better at that particular time. The problem with this is that you will always be flip flopping at the exact wrong time and chasing yesterdays returns. If you are going to be a successful investor you need to accept the reality that at certain points of time you will not look like the smartest investor and be willing to stay disciplined to a tried and true process that fits your needs and comfort levels. When your neighbour is telling you that they just made a huge gain on a marijuana company or Bitcoin, you need to be willing to stick to your process. When someone on TV is telling you that they invested in the latest technology company and gained 300%, you need to risk the temptation to deviate from your plan. It’s difficult, but you will be rewarded for it as the strategy you have employed will return to favor (often as those other high-flying investments are dropping) and you will enjoy the comfort of knowing your plan is working. Remember, even the greats like Buffett and Munger underperform the market 1/3 of the time but what makes them different is that they don’t flip flop. The question you should ask yourself is if the best in the world aren’t chasing returns then why should you?
- Grant White, CIM, CFP®
Grant White is an award-winning Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. This cannot be interpreted as legal advice, please consult your attorney.