The Long Term Investor

TO CONTINUE.....on my theme of simplicity. (SEE TWO PRIOR POSTS) Here is one last "little" "simple" weekend article for consideration. (BOLD) is my emphasis and opinion on the kernel of truth in this little article.

What Berkshire Hathaway's Charlie Munger learned about life at age 7

https://www.cnbc.com/2019/02/22/wha...arlie-munger-learned-about-life-at-age-7.html

Charlie Munger 3:46 PM ET Fri, 22 Feb 2019 | 02:02

"The story of Warren Buffett, the "Oracle of Omaha" and legendary billionaire investor behind Berkshire Hathaway, is practically universally known. Yet his business partner, Charlie Munger, is arguably lesser known.

The two men met back in 1959, when both men worked at the Nebraska grocery store owned by Buffett's grandfather. From there, a friendship developed and Munger has been Buffett's right-hand- man at Berkshire Hathaway since 1978. The 88 year old Buffett serves as chairman, while 95 year-old Charlie is vice chairman.

So how does a partnership that spans decades work for that long? Munger recently told CNBC's Becky Quick that the secret to a long and happy life is "easy, because it's so simple." His advice applies to both business and the personal.

"You don't have a lot of envy, you don't have a lot of resentment. You don't overspend your income, you stay cheerful in spite of your troubles," the Berkshire executive said.


"You deal with reliable people and you do what you're supposed to do. And all these simple rules work so well to make your life better. And they're so trite," Munger added.

And how old was he when he figured out these "simple rules"? He replied: "About seven."

Munger explained that even at that tender age, he could see that some "older people were a little bonkers." He said ability to recognize that "always helped me because there's so much irrationality in the world."

Munger added that he's thought about the "causes and preventions" of irrationality "for a long time." As a result, he found that "staying cheerful" has helped him in life "because it's a wise thing to do.".........

MY COMMENT:

AVOIDING IRRATIONALITY in investing is a critical element of a successful plan. Of course, being HUMAN, we often have a very difficult time determining or seeing what is irrational at the moment without the benefit of LONG TERM HINDSIGHT.

 

Andrew

Thank you....too...for being here. Hope you will share some of your experiences as you invest or trade or go through your financial life experiences.

 

NICE market open to wake up to today. We ARE heading toward the all time HIGHS. Is there ANYONE that thought we would NOT get a China deal this year and particularly some time during the January to June time span? If so WHY? WHY would you have thought this? In MY opinion, it was OBVIOUS. ANYONE, especially the MEDIA, and talking heads that pushed fear and doom and gloom over whether or not there would be a China deal were either irrational, delusional, or MOST LIKELY were pushing their political agenda, OR were giving in to political wishful thinking. A recipe for disaster for an investor. Letting your personal world and political views get in the way of REALITY. (although we are not totally there yet)

TomB16 is RIGHT as usual with his little but important point in the post above. It is EXTREMELY DIFFICULT for ANYONE, especially the professionals to beat the SP500 on a consistent basis. That is why I have TWO INVESTMENT GOALS (both very difficult to achieve, that is why they are called "goals" or aspirations):

1. Beat the SP500 each year
2. Average a long term total return of 10% (or more )

So far I am achieving my goals for my investing lifetime with a total return for life of 13-14% per year average total return. The primary reason for this is CRITICAL single investments that have boosted my LONG TERM average....like the EARLY investment in Microsoft in 1990/1991 and holding that stock through the very early, many stock splits, of the 1990's. ANOTHER great investment for many decades was Phillip Morris with dividend reinvestment, and many others. One reason for my VERY CONCENTRATED stock portion of my PORTFOLIO MODEL is to try to achieve goal number one. THIS is a moderate aggressive portfolio on the stock side. BUT I have the risk tolerance and financial situation to hold through the erratic times. My thinking matches that of Warren Buffett when it comes to DIVERSIFICATION. I DO NOT practice diversification as it is pushed in the financial media today. I BELIEVE that most people are way over diversified and it KILLS their returns. Over the past 40+ years my stock holdings have usually been in the neighborhood of 10-16 stocks.

As I have said in the past, my MUTUAL FUNDS are in the account to balance out my stock picking BIAS and stock portfolio concentration. The funds I own.....FIDELITY CONTRA FUND and DODGE & COX STOCK FUND and VANGUARD SP500 INDEX FUND... have proven over the LONG TERM that they can stand toe to toe with the SP500......not a lot of funds can do that. Of course, one third of my fund allocation is in the SP500 INDEX FUND.

In the distant past, being a long time shareholder in Fidelity Magellan Fund and riding on the success of Peter Lynch ALSO contributed to my long time total return. ("As the manager of the Magellan Fund[2] at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return,[3] consistently more than doubling the S&P 500 market index and making it the best performing mutual fund in the world.[4][5] During his tenure, assets under management increased from $18 million to $14 billion.[6]") (from Wikipedia) I liquidated that holding about a year after Lynch left as manager.

I have been a shareholder in Fidelity Contra Fund for the entire William Danoff era, it has had a great run. (from Wikipedia.... "Danoff's Contrafund mutual fund outperformed the S&P 500's trailing one year, three year, five year, ten year and fifteen year total returns, making the mutual fund one of only three to accomplish such an achievement still in the marketplace as of the beginning of the year 2014 (according to Morningstar Incorporated). As of July 2018, the fund has continued its outperformance over the S&P 500.") (quote from Wikipedia) It will be a sad day when he leaves or retires as manager. At that point I will have to SERIOUSLY evaluate holding this fund.

I have been a shareholder of Dodge & Cox Stock Fund for about 25+ years now. ("Dodge & Cox has just six, single-class mutual funds, compared with an average of 464 for the largest 25 fund shops, according to Morningstar. Its fees are about half the industry average, Morningstar says. It has no sales force and says it has never paid to advertise its small stable of funds.") (from https://www.nytimes.com/2017/10/13/business/mutfund/dodge-cox-mutual-funds.html) ("That Dodge & Cox is a private company protects it from quarterly earning pressure to ramp up fees. And the firm rates among the highest among mutual fund companies in terms of portfolio managers that invest in their own funds, which studies have found is a key attribute for funds that outperform their peers.") (https://www.nytimes.com/2017/10/13/business/mutfund/dodge-cox-mutual-funds.html)

ANYWAY...Here is the NY Times Article on its own that is quoted a little bit above:

An Old-School Investment Manager That Builds Wealth Quietly


https://www.nytimes.com/2017/10/13/business/mutfund/dodge-cox-mutual-funds.html

ANYWAY, just some RANDOM thoughts for a Monday morning. TODAY......we.......ride the wave.....ride the wave....

 

I came back on here because I HAVE to mention one thing along with the post above. DONT GET ME WRONG......EVERYONE...and I mean EVERYONE....has stocks and funds over a lifetime of investing that DID NOT perform as expected or were total disasters. It is NOT all fun and games and balloons, and cupcakes, and ponys. WE ALL fail in our investing at times. The KEY is RATIONAL investing behavior with more winners than losers over a sustained LONG TERM. INVESTING is FAILING, the key is to FAIL less than the next guy and to FAIL less than or at worst the same as the averages.

YOU and "I" do not have to be perfect or even anywhere close to perfect to be successful in our investing. There is NO SUCH THING. It DOES help if you can recognize a FAILURE in your investing and get out and into something better as soon as possible. A very difficult task considering human behavior and the working of the human brain, not to mention EGO, EMOTION, SUPERSTITION, HOPE, and the capacity for humans to fool themselves.

 

HERE is an article expanding on the quote posted by TomB16 two posts above. SEEMS about right to me based on my experience and watching investors FLAIL around for the past 40+ years.

Warren Buffett says he can't beat the S&P 500

https://www.cnn.com/2019/02/25/investing/warren-buffett-sp-500-stocks/index.html

(BOLD is my emphasis and opinion of important content)

"New York (CNN Business)The world's most well-known investor says it's hard for him to do better than the broader market. So should you even try?

Warren Buffett told CNBC on Monday that he's had a "tough time" trying to beat the S&P 500. The Oracle of Omaha, who just released his annual Berkshire Hathaway (BRKB) shareholder letter, suggested that the index is still the best way to invest in the stock market for most people. He even joked that most of the time he doesn't know how to pick individual stocks.
Buffett told the network that his two investing gurus, Ted Weschler and Todd Combs, have each underperformed the S&P 500 during the past few years by a "tiny bit." Even so, he added that their stock picks have done better than his.
Of course, the long-term track record of the world's third-richest man says otherwise. But he has a point.

Taking less risk

It seems silly for investors to try picking and choosing the best stocks — the market, writ large, historically tends to go higher. Just ride the wave, and you'll do fine.
But why the S&P 500 and not the Dow Jones Industrial Average? The S&P 500 may not be as famous as the Dow. But this blue chip index has exposure to nearly all of America's most important companies, and it ranks them by how large they are.
That makes it a much better proxy for the US economy than the Dow, which has only 30 stocks in it and weighs them by their stock prices.

Unsurprisingly, the S&P 500 now skewstoward technology. The sector has done extraordinarily well over the past decade because of growth in online advertising, social networks, e-commerce, cloud computing and mobile gadgets.
The four most valuable companies in the S&P 500 are Microsoft (MSFT), Apple (AAPL), Amazon (AMZN) and Google (GOOGL) owner Alphabet. Facebook (FB) ranks sixth. The only non-tech company among this group of giants: Berkshire Hathaway, which is in fifth place. Berkshire Hathaway is famously underweight the technology sector, however.

Yes, Buffett's top holding is now Apple. But before Berkshire invested in the company, its favorite tech stock was IBM (IBM) — not exactly the most exciting name in the industry.

Most of Berkshire's other top stocks are far less dynamic than Apple, too. Big financial firms Bank of America (BAC), Wells Fargo (WFC) and American Express (AXP) rank among its five largest investments. Buffett is also a fan of consumer staples Coca-Cola (KO) and struggling Kraft Heinz (KHC). And his firm has recently fallen in love with airlines: Southwest (LUV), Delta (DAL), United Continental (UAL) and American (AAL) are among Berkshire's top 20 holdings. All of that means it should not be a major surprise that the Berkshire portfolio has lagged the market lately.

Better than bonds

Instead of looking at Berkshire, investors should focus on what Buffett thinks about the stock market broadly. He noted that the market is cheap, especially with longer-term US Treasury bond yields like the 30-year hovering around 3%.
Buffett told CNBC that faced with a choice between bonds and stocks, the decision is easy.
"I'd buy the S&P in a second," Buffett said, adding that he would give "enormous odds" that the S&P 500 will do better than 30-year bonds over the next three decades."

MY COMMENT:

About all I can say is........DUH. Seems about right to me. I will say......AS USUAL....if you want to invest for the LONG TERM with little to no thinking involved and just let it ride or do regular investments NOTHING beats simply just putting it all in a SP500 Index Fund. Nothing more, nothing less needed.

ANOTHER good positive day although we saw a FADE AWAY as the day went on. As I type this DOW closed UP +60.14. Lest hope this is a start to week 10 in a row. We will know in four days. At the moment:

DOW year to date +11.85%
SP500 year to date +11.54%

 

STOCK portion of my PORTFOLIO MODEL working hard today to give me a POSITIVE day compared to the SP500. My stock portion today +.05%. AND my funds at (-.04). I will take any BEAT, no matter how small of the SP500.

I am encouraged by the strength of the markets today in the face of a 100+ point drop at the open. We than erased that loss and within a few hours were going back and forth between a slightly negative and slightly positive day, ending up small negative. Today, even though the general averages ended slightly negative we showed strength. TOMORROW......is a new day.

 

I generally follow the plan of investing.....ALL IN ALL AT ONCE when I am ready to buy something. NO dollar cost averaging, NO market timing. It is CONTRARY to what your brain tells you is the way to do it, but statistically is the best way to do it according to all the research that I have seen.

Is Now a Good Time To Invest?

http://www.servowealth.com/blog/when-is-the-best-time-to-invest

The bottom line of this very little article:

"Instead of trying to time the market, I suggest investing when you have the funds available and only selling when you need the cash flow for spending purposes. The odds strongly favor "plunging in" with available cash, and the odds only improve the longer the time frame we look at."

HERE is another article, one of thousands, on this topic. NOTE, this article like many cites the SEMINAL study on this topic done years ago by George Constantinides:

Does Dollar Cost Averaging Make Sense?

https://meritwealth.com/blog/does-dollar-cost-averaging-make-sense

MY COMMENT:

There are literally thousands of articles on this topic if you "google" "dollar cost averaging versus lump sum investing". Of course in today's world many people dont have a choice. They invest out of each pay check, or when they happen to be able to save money, or through a 401K or other plan that is set up for investing each pay period. The KEY is to DO SOMETHING. Details and research are good to know, but investing in some way that is comfortable or works financially for you is preferable to doing nothing at all.

 

I retired at 49 and will start my income annuity self funded pension at age 70. For the past twenty one years I have lived off retirement account (Keogh Plan rolled over into an IRA). I had to stretch that money for 21 years through stock and fund investing and cash for living. I usually followed my same Portfolio Model as described in this thread throughout that time. I tried to keep FIVE YEARS of cash or cash equivalent (CD) free of the stock market. At times I would get down to 2-3 years living cash, before replenishing the POT by selling selective holdings from the stocks and mutual funds in my IRA. I was pretty successful at selling to replenish the funds at various market tops. I had that FIVE YEAR plan to give me plenty of leeway to avoid having to sell at a bad time in the markets.

IN HINDSIGHT, my plan worked out pretty well. I just exhausted the balance of my IRA this January to provide for living expenses in 2019. My plan DID work as expected, but I had to really work at it and planed for the best and worst situations. AND, during the time I have been retired I have gone through the DOT-COM BUST and the 2008/2009 near "world economic collapse".

I was very LUCKY to sell totally out of stocks and funds in May of 2008 and fully come back into the markets in March 2009. Because of my limited pot of money that I HAD to make last till age 70 (without having to touch my personal taxable brokerage account) I was EXTREMELY tuned in to the "world wide near economic collapse" occurring in 2008. I left the markets totally in May 2008, I could see that for the first time in my lifetime there was ACTUALLY A POSSIBILITY of world wide banking and economic collapse. Previously I would have said it was impossible. I did not think it was PROBABLE, but I did believe it was definately POSSIBLE, perhaps a 15-25% chance. So I sold everything in my personal accounts.

I believe we were closer to a catastrophic banking collapse than most people realize. By March of 2009, I felt that the worst was over and that we were at a point with prices of stocks and funds that I had to get back in. At that point I could not imagine that prices could go down more than 10% max (they did not) and that was a risk I was willing to take to get in at a HUGE historic discount. So....... I repurchased all my stocks and funds based on my typical PORTFOLIO MODEL.

I thought I was locking in very good prices and, being a LONG TERM INVESTOR, I knew I had time on my side. I HAD NO IDEA that that was to be the start of the greatest BULL MARKET in stock market history.

SO......this is my story of the ONE TIME that I actually sold everything and got out of the markets based on an educated FEAR of the short term. The initial selling out was intentional......the buying back in was intentional........the timing of buying back in turned out to be really good which was partly luck since I really thought there might be another 5-10 percent downside risk which was acceptable to me.......and the RECORD BULL MARKET since 2009, TOTALLY UNANTICIPATED, I was just doing my fully invested all the time thing for the LONG TERM again now that I felt the risk was acceptable and we would be headed back toward a normal investing environment.

 

HERE is the financial story of the day. GOOD news....but....now, it is old news. What counts is how things go moving forward. By all accounts, we seem to be on track to continue the good GDP results of the past few years moving forward.

(BOLD represents my emphasis and opinion of valuable content in the article)

US economy grew at 2.6% rate in fourth quarter

https://www.foxbusiness.com/economy/us-economy-grew-at-2-6-percent-rate-in-fourth-quarter

"The U.S. economy grew by a rate of 2.6 percent this winter, beating analysts' estimates of 2.3 percent thanks to solid consumer and business spending.

It also bested GDPNow a real-time tracker monitored by the Federal Reserve Bank of Atlanta, which lowered its estimate to 1.8 percent earlier this week, largely because of a grim outlook for retail sales, which took a hit, in part, due to the shutdown.

“Overall, with expectations fairly low going into this report, this was a positive surprise that should reinforce the overall health of the U.S. economy for investors,” said Charlie Ripley, senior investment strategist for Alliance Investment Management.

Release of the fourth-quarter GDP by the Bureau of Economic Analysis (BEA) was delayed by almost one month as a result of the 35-day partial government shutdown, the longest in U.S. history.

In 2018, the GDP increased by an estimated 2.9 percent (compared to 2.2 percent in 2017), narrowly missing the Trump administration's goal of 3 percent growth for the year. That’s essentially the same annual growth as in 2015, which was the fastest pace since 2005.

"For the full year, growth was impressive, but the outlook for 2019 is expected to be more muted between fading global prospects, less lift from the tax cut and the clouds surrounding Brexit and U.S.-China trade,” said Mark Hamrick, the chief economist for Bankrate.com.

White House officials also applauded the number. Commerce Secretary Wilbur Ross said the GDP -- which he said was buoyed by the 2017 Tax Cuts and Jobs Act -- “beat expectations comfortably.”

“President Trump has unleashed American growth at a pace the experts thought was not possible, approaching 3 percent GDP growth in 2018,” he said in a statement.

In the middle of February, U.S. retail sales recorded their biggest drop in more than nine years, spurring fears about an economic slowdown and a drop in consumer spending at the end of 2018. According to the Commerce Department, retail sales fell by 1.2 percent, the largest decline since September 2009, when the U.S. was still recovering from the Great Recession.

The BEA generally provides three estimates of the GDP for each quarter; however, they will only provide two readings this quarter. The final reading remains on track for March 28."

MY COMMENT:

BASICALLY a GDP of 3% for 2018. A SOLID result and there is absolutely no reason this should not be the norm for most years moving forward as it was often in the past. Here is some Regan era GDP info from Wikipedia:

"Real GDP grew over one-third during Reagan's presidency, an over $2 trillion increase. The compound annual growth rate of GDP was 3.6% during Reagan's eight years, compared to 2.7% during the preceding eight years.[57] Real GDP per capita grew 2.6% under Reagan, compared to 1.9% average growth during the preceding eight years."

AND

HERE is GDP for what I consider the MODERN ERA. Why or how we got to the place that now many people believe that a HOT GDP or even NORMAL GDP is about 2%.....I have no clue. It is actually NORMAL for GDP to be in the 3-4% range.

GDP BY YEAR
Date Value
Dec 31, 2018 2.90%
Dec 31, 2017 2.47%
Dec 31, 2016 1.88%
Dec 31, 2015 2.00%
Dec 31, 2014 2.70%
Dec 31, 2013 2.61%
Dec 31, 2012 1.47%
Dec 31, 2011 1.61%
Dec 31, 2010 2.57%
Dec 31, 2009 0.18%
Dec 31, 2008 -2.75%
Dec 31, 2007 1.97%
Dec 31, 2006 2.59%
Dec 31, 2005 3.13%
Dec 31, 2004 3.28%
Dec 31, 2003 4.33%
Dec 31, 2002 2.09%
Dec 31, 2001 0.15%
Dec 31, 2000 2.97%
Dec 31, 1999 4.81%
Dec 31, 1998 4.88%
Dec 31, 1997 4.49%
Dec 31, 1996 4.42%
Dec 31, 1995 2.20%
Dec 31, 1994 4.12%
Dec 31, 1993 2.61%
Dec 31, 1992 4.38%
Dec 31, 1991 1.17%
Dec 31, 1990 0.60%
Dec 31, 1989 2.74%
Dec 31, 1988 3.80%
Dec 31, 1987 4.48%
Dec 31, 1986 2.91%
Dec 31, 1985 4.18%
Dec 31, 1984 5.58%
Dec 31, 1983 7.90%
Dec 31, 1982 -1.44%
Dec 31, 1981 1.30%
Dec 31, 1980 -0.04%
Dec 31, 1979 1.28%
Dec 31, 1978 6.66%
Dec 31, 1977 5.01%
Dec 31, 1976 4.31%
Dec 31, 1975 2.55%
Dec 31, 1974 -1.95%
Dec 31, 1973 4.02%
Dec 31, 1972 6.90%
Dec 31, 1971 4.37%
Dec 31, 1970 -0.17%
Dec 31, 1969 2.05%
Dec 31, 1968 4.96%
Dec 31, 1967 2.67%
Dec 31, 1966 4.50%
Dec 31, 1965 8.46%
Dec 31, 1964 5.16%
Dec 31, 1963 5.16%
Dec 31, 1962 4.31%
Dec 31, 1961 6.40%

 

I am sure you can tell that my postings are usually RANDOM and based on my daily reading. Here is a "little" article that is very relevant in many ways for investors and especially LONG TERM INVESTORS that might be tempted once in a while by the DARK SIDE.......technical analysis, trading, market timing, etc, etc, etc.

(BOLD represents my comment and opinion of important content in the article)

Seasonality, However You Slice It, Isn't Predictive

https://www.fisherinvestments.com/e...sonality-however-you-slice-it-isnt-predictive

"We think there are a lot of good reasons to be bullish on stocks this year. However, this isn’t one of them: the fact US stocks are on course to finish 2019’s first two months nicely positive. A tweet that went quasi-viral this week suggests otherwise, pointing to the historically strong returns in years where January and February each posted positive gains. An interesting observation! But nothing more, alas. This newfangled twist on the January Effect, which posits full-year returns echo January’s, shares all the flaws typical of seasonal adages.

We don’t dispute that a good January and February have historically accompanied a good year. The data are what they are. But arguing this is predictive strikes us as a bridge too far. Like all seasonal saws, it presumes past performance foretells future returns, which is a statement that just about every investment disclosure and financial regulator disagrees with. If you believe a certain month (or whatever) predicts full-year returns, then you believe stocks are backward-looking and not at all efficient. To the extent any calendar-based forecasting tool ever had any predictive power, efficient markets priced it eons ago, sapping any potential advantage.

Patterns are fickle friends—they always hold until they don’t. The January Effect works often but not always. Ditto for Sell in May, which would have you sell when May starts and sit out for six months. September has the lowest average return of any month, and December is positive far more often than not. But how do you know in advance which trick will work in which year? What if a bad September comes in a positive Sell in May window—what then? What if January is wrong? What if what if what if?

For fun, we did a high-level test of the big four seasonal saws since good S&P 500 data begin. For simplicity, we said the January Effect worked if January and full-year returns went the same direction; Sell in May worked if the six-month stretch from April 30 through Halloween was negative; September stunk if stocks fell; and the Santa Rally worked if December was up. As you will see, it was all over the map. We particularly enjoy the 19 years when September Stinks but Sell in May doesn’t work (there were only three years when the reverse happened). Almost as amusing? The 31 years when a Santa Rally followed a Stinky September, proving the folly of trying to trade around any of this.

Seasonal patterns are fun trivia. Knowing the average 10-month return and frequency of gains after January and February are positive might help you at Finance Pub Trivia, and if you know of a place that actually holds Finance Pub Trivia, do drop us a line through the feedback link at the bottom of this article. But aside from trivia and fun tweets, these fun factoids strike us as not terribly useful.

Exhibit 1: A Lite Brite of Seasonal Patterns



Source: Global Financial Data, Inc., as of 2/27/2019. Based on S&P 500 total return index, monthly, January 1926 – December 2018"

MY COMMENT:

YES......there is NO HOLY GRAIL of investing. There is NOTHING that will identify when the markets are going to be up, down, or sideways. Of course, my bias is as a LONG TERM INVESTOR that does not believe in Technical Analysis, Market timing, Chart Reading, or any of the other complex strategies that are used by people with rules, exceptions, exceptions to the exceptions, exceptions to the exceptions to the exceptions, etc, etc, etc. Add in the ability of the Human Brain to see patterns and all the other human based investing behaviors and......well, that is my bias. On top of this add in various news events, BLACK SWANS, etc, etc, and you have the reason that I am a LONG TERM INVESTOR focused on company fundamentals and business evaluation, especially management and marketing and iconic products. I DO find it INTERESTING that even when some investing "rule" does not work it takes a very long time and painful lessons for most people to discard the "rule". These things take on a life of their own and become self-sustaining even though they generally are nothing more than SUPERSTITION and do not work.

ACTUALLY, I guess this ties in with what Tom said above:

"I find it difficult to believe anyone who claims to know what the markets will do in the future......"

 

To ME that is a GOOD THING. I hate to see the markets run away with exuberance and enthusiasm. The old "climbing a wall of worry". Tells me we are not at a top and that the historic BULL MARKET has a ways to go. MOST of the delusional media BS is simply political wishful thinking and.......I hate to use the term here.......FAKE NEWS for clicks and eyeballs and sensationalism.

 

I LIKE this "little" article. OVERTHINKING and overacting are killers in investing. For the LONG TERM the ability to stick with a simple plan and go with the flow is critical. You dont have to be perfect all the time, just the majority of the time.

(BOLD is my comment and opinion of critical content)

Not Caring: A Unique and Powerful Skill

https://www.collaborativefund.com/blog/not-caring-a-unique-and-powerful-skill/

"Jiddu Krishnamurti was an Indian philosopher. His message became more candid as he aged.

In one famous moment during a talk, he asked the audience if they wanted to know his secret.

He leaned forward, and whispered: “You see, I don’t mind what happens.”


This is a unique and powerful skill if you can actually do it.

Almost 600 people ace the SATs each year. Another 7,000 come within a handful of points. There are a lot of smart people. And they’re getting smarter. Average IQ scores have risen 10 points per generation for decades.

A field as competitive as investing can only repeatedly reward skills that are truly unique. And any skill that others can be taught is not unique, because this industry is so lucrative that thousands of people will move mountains to learn it. The extreme tails of intelligence are rewarded. But merely high intelligence rarely is because there are many so smart people chasing the same thing – outperformance – with intelligence learned from the same schools and firms. Smart is not a unique skill. That’s why so many smart people don’t outperform.

What is unique?

One of the most unique and valuable skills in this industry is Jiddu’s secret: not minding what happens.

Not in a flippant way. You have to care about eventual outcomes, the people you work with, etc.

But if you can remain dispassionate about what people think of you while you’re trying to get that outcome, or about the noise around you during the process, you have an advantage that I doubt one in a hundred thousand has in this industry.

There are two drivers of enduring investment performance:

• Doing something others don’t.
• 
  Doing something others do but during a time they don’t want to.

Every investor done well over a long period of time can put their success into one or both of those buckets. And both require some degree of not caring what happens.

A few things that help you get there.

1. Not caring about looking dumb when you’re confident others are being dumber.

Peter Kaufman once told a story of a conversation he had with Warren Buffett. Kaufman told Buffett he had a theory about why he was the greatest investor in the world.

It was 1999. “During the bubble, everybody said you’re an idiot, behind the times. You’ve lost it, you don’t understand technology.” Kaufman said.

“You know why I think you’re the richest man in the world?” he told Buffett. “I think you’re getting paid back for being willing to appear foolish on a scale that probably that no one in history has ever been willing to appear before. Billions of people watching you, year after year goes by, yet you don’t mind appearing foolish. That’s no minor feat.”

Napoleon’s definition of a military genius was “the man who can do the average thing when everyone else around him is losing his mind.” It’s harder than it sounds and requires an iron will of detachment.

2. Not caring about having an imperfect portfolio.

Some problems can never be solved because the world they live in is always adapting and changing. Portfolio construction is one of them. Incredible amounts of effort are devoted to finding the optimal level of diversification and position sizing. There are critical elements to both. But some level of “good enough” can be ideal for most people. The factors that determine future returns are still out of your control no matter how many spreadsheet tabs your model uses, and when you let go of caring about having a perfect portfolio you have fewer knobs to fiddle with, which reduces the chances of regrettable decisions. A rule of thumb is to prefer the strategy that’s likely to get you closest to your goal with the fewest number of decisions needed along the way.

3. Not caring about the reputational hit that comes from changing your mind.

If you’re right about one thing, people will pay attention to you. You’ll become an expert in that one thing, asked to make predictions about what it will do next. Then, if you change your mind about that thing, a wave of people who gave you attention because they wanted to believe in the thing will flee and discount your wisdom, since they can no longer use you to confirm their views. Not caring about that demotion is a gift. There are things that never change, but underneath them are trends, industries, companies, countries, and strategies that come and go. The ability to let go of past beliefs when they’re no longer valid, or you realize you were wrong to begin with, is indispensable in this field. The only thing more dangerous than a view that changes on a dime is a view that hasn’t changed in decades.

4. Not caring about not having no explanation for the majority of events.

There’s two types of “I don’t know.”

One is, “I don’t know, but I’m trying to figure it out.”

The other is, “I don’t know and don’t care because it doesn’t matter to what I’m doing.”


The latter one is underrated and more important, because it forces you to acknowledge factors that do, and don’t, make a difference to your strategy.

The thing about statements like “Stocks fell amid news of slower economic growth” is not just that we don’t know whether it’s correlation or causation. It’s that even if we did know it’s causation it may not matter. Would you do anything different if you knew exactly why stocks fell today? Would it change your strategy? Maybe not. Probably not. Hopefully not.

A lot of events fit this category. Einstein’s alleged quip of “Not everything that can be counted counts” holds true for maybe 98% of what happens in financial markets. And if you can put that idea to use you free up time to focus on the 2% that does count.

Figure out what you can control and obsess over it. Identify what doesn’t matter and ignore it. Determine what you’re incapable of and stay away from it.


Have room for error.


Plan on things not going according to plan.


After that, you, see, I don’t mind what happens."

MY COMMENT

Good and simple analysis. BUT, as usual, simple for humans is nearly impossible.