Good Drivers Are Good Investors
I’ve always resisted my industry’s penchant for pre-written newsletters that advisors put their names on and email out as their own. I know my clients. I know the challenges they face. They aren’t like the broad group of people out there and the way I manage their portfolio isn’t like the rest of the industry either. This article was written by me for YOU. I think about and care deeply about all my client’s balance sheets. I see many people beginning to crack under the pressure of mass marketing that the financial industry engages in. Namely, “Why aren’t MY investments doing what these advertised investments are doing?", and, “Should I change?"
The answers lie in my following thoughts:
There is no other way to say it but this: 2020 has been a nightmare for investors. But not because of why you may think. COVID-19 isn’t the reason why many investors are having a tough time.... the way they drive their cars is the reason they are having a tough time.
Yes. Come on, just stick with me.
Pre-virus, I traveled A LOT. I flew from the Mid-West to Las Vegas and California to meet with clients. I drove roundtrip from St Louis to Memphis, TN (a five-hour drive) every week and sometimes I would do that trip in a single day, up and back again to meet clients. I also flew all over America to speak at industry events and train other financial advisors. Travel really takes a lot out of you, and one thing that it would do to me was erode my patience. Specifically, in traffic. Whether I was traveling the 405 in Southern California or driving I55 for 5 hours, I was usually caught in different types of traffic. Some traffic was due to accidents. Some was routine rush hour or congestion. To get to where I wanted to go as fast as possible, I would change lanes often.
Recently I was thinking about those lane changes. Mathematically speaking, did changing lanes actually work? I mean it SEEMED to work. Sometimes. But if it DID work, then why don’t we just have the algorithm for driving in traffic so that we all get where we want to go fastest? It seemed like a basic math problem to me. So, I looked it up. And guess what I found? Actually, let me tell you what I couldn’t find. I couldn’t find a single mathematic case for lane changing. I looked hard. I Googled the heck out of this. I just couldn’t make a case for lane changing. The only thing I could verify was that the key to getting anywhere in traffic was to stay in one lane and ignore what LOOKED like traffic moving in other lanes. There was mind NUMBING statistics that backed this up. Rate of speed, velocity vectors, angle of entry, and other unknown terms to me all backed up the same hypothesis: changing lanes in traffic does NOT help. In fact, it makes everything worse.
There was one more key that jumped out to me:
The middle lane typically offered the smoothest ride because you wouldn’t have people merging into and out of traffic in your lane.
Interesting: Pick a lane. Ignore others. Choose the smoothest lane. Guess where else that works? Yeah.... investing!
Just like an impatient driver, investors are looking to other lanes this year. “Why don’t we just move our money to the S&P 500, the NASDAQ, technology sector funds, etc. etc.”??? “Joe, it’s OBVIOUS we should be in that OTHER lane. Let’s GO”!
We know that isn’t the correct way to invest. Jumping around is not a prudent way to invest and it goes against our human intuition. Humans believe we can and should DO something.
We should be proactive. However, investing results often come from doing less, not more. The simpler (the “smoother”) the ride, the better off you will be in the long run. Yes, other lanes will appear to be moving faster. You will feel as if you are missing out. But the science and statistics simply do not agree with you. In 2020 we have been told that we should “follow the science” as it pertains to COVID-19. That makes rational sense. Why aren’t we doing that with our investments?
Humans (I included, in fact myself even more) are NOT rational beings. We are emotional. It’s what makes us susceptible to marketing and advertising. It’s what makes us want to change lanes in traffic and it makes us want to change our investment philosophy.
If this is you...if you are looking at other lanes and want so badly to change over there, just talk to me. I want what is best for you. I’ve aligned my compensation with you. I only make money if you stay my client. But I won’t do anything that will hurt you. My principles have been honed over 22 years in this business. I’ve been through almost everything. I’ve wanted to change lanes too. But I will follow the science. And I hope you will continue to do so as well.
And what does the science say about investing? It says asset allocation and proper investor behavior is, by far, the biggest determinants in success. More so than market timing (changing lanes) or individual stock picking. The science says that we own a global portfolio among many, many markets. We own small, emerging, value and growth markets. We use short term, high quality fixed income to offset risk (to smooth out the ride). We use statistics like Standard Deviation and other methods of measurement to build a robust portfolio that will stand the test of time. Then it’s my job to try and keep you in it. I won’t bore you with my industry’s jargon (like velocity vector and angle of entry in traffic), but please know I study it all the time. I spend an immense amount of time making sure that I know as much as I possibly can about the markets and what they are doing. And I pass that along to you. Financial victory is in the future for most of you. Maybe even decades in the future. I know the lanes to direct you to. The question is...will you take it or will you change lanes?
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 4275 Executive Square #800 La Jolla, CA 92037 619.684.6400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners, LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License #0D34103 AR Insurance License #2195027 | 2020-107032 Exp. 08/22 | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The opinions expressed are those of Joseph Delisi and not necessarily those of Guardian or any of its subsidiaries.