Quote for the Week
Many aspects of investing are fun, but your future wealth isn’t a game. You should manage it in the most cold-blooded fashion. Emotion, pride, ego, dreams, and nightmares have nothing to do with the process, although some investors rely on little else. It is in this sense that volatility really matters.
Many people pride themselves on being “long-term investors,” but acting deliberately when prices are bouncing around is not so easy. When stocks are blasting skyward, even the most steadfast can be sucked into the updraft. When they are cascading downward, keeping one’s cool is almost impossible. Volatility provokes the constant dread that some investors know more than we do, making us fearful of ignoring such powerful price movements…
I emphasize this psychological aspect of the matter, because those wonderful statistics on long-term returns are what the market did, not what any single individual or fund did, or would do, if history replayed itself. In my real-world experience, investors with smaller allocations to stocks and with some anchors to windward have been the ones most likely to be the winners over the long haul. The crucial element of success is the ability to make decisions without freezing up or slamming the panic button. In bear markets, the muted volatility and the contractual safety of bonds provide the most congenial environment for arriving at rational decisions about stocks. In bull markets, the balanced portfolio may not make for lively cocktail-party conversation, but with 60 percent in stocks, your wealth will still be participating and growing…
In investing, tortoises tend to win far more often than hares over the turns of the market cycle (and, as we have recently been reminded, markets still do have cycles). — Peter Bernstein (source)
From the Archives
Last Call
- What We’ve Learned From 150 Years of Stock Market Crashes – Morningstar
- Short-Term vs. Long-Term Investors – Klement on Investing
- An Orchestrated Recession? – K. Scanlon
- Marks Memo: Gimme Credit – Oaktree
- Four Thoughts – J. Clements
- Bounded Rationality: Recognizing the Limits of Decision-Making in Investing – Polymath Investor
- Understanding the Stock–Bond Correlation – Alpha Architect
- Is GoFundMe the New Insurance? – Dwell
- Why It’s So Hard to Build a Jet Engine – Construction Physics
- London’s Forgotten Banana Nuisance – Londonist