I wish this wasn’t true but I can’t tell you how many times in casual conversations, or in different articles that I’ve read, I notice statements that seem to indicate investors can’t make money and the odds are stacked against them.
It almost cultivates the idea of a secret group of insiders who are making money by investing, and everyone else is left out.
Unfortunately, stories found on all media channels are either predicting the next great market crash, the next economic apocalypse, or the next government breakdown. These types of stories seem to fuel these fears.
Performance is important, and positive lifetime performance is possible. If you were considering entering the world of investing, the very next thing others would talk about is trying to find the best performing investments. Unfortunately, the adage rings true that past performance is no indication of future results.
The ultimate goal of long-term investing isn’t performance, it is owning a portfolio of great companies in the US and around the world. Before you can begin, you must be able to differentiate what is truth and identify what is causing you to doubt your ability to succeed.
There are three key factors that can help you understand how to do this with excellence.
First, it’s important to realize, despite what others may tell you, historical performance in great companies in the US and around the world is actually very strong. Over the last 80 years, smaller companies have averaged 12 percent return a year, while larger companies have averaged 10 percent. Even over the last 20 years, the numbers don’t deviate much from these, despite two of the greatest stock market crashes we’ve seen in our lifetime.[1]
I heard a wise person once say that history doesn’t repeat itself, but it rhymes. Considering that, these great companies would appear to serve you well based on what we know.
Second, you must know that emotions are real, but your emotions are hurting you. I find it funny, investing in companies is the only thing that, when they go on sale, the more people want to wait to buy.
Consider it this way. If you went into your favorite store and they had things on sale, how silly would it be of you to say, “No, I don’t want any of this,” especially if it was something that you’d been looking to buy for a long time? Even then, your reaction was, “I want to come back when the prices are higher.”
That’s exactly how we seem to treat our emotions when it comes to investing in great companies. The interest of the public is higher when the prices are higher. When the prices temporarily pull back, it seems most people want to run away.
Be aware that your emotions are not serving you. Even when you do invest, the temptation can be to try and sell when things are lower, which would hurt your long‑term performance.
Third you should acknowledge that the media is not serving you. There’s a lot of money made in producing magazines, websites, newsletters, and daily television programs that talk to you about how to consider investing.
Unfortunately, they all have an agenda that seems to be focused on selling the next advertising slot, not on helping you consider how you should position yourself in an investment that needs 5 to 10 years to truly show its potential.
The media is so short‑term‑focused that, if we’re not careful, we’ll start making decisions on a short‑term basis rather than decisions that are good for the long term. All of that to say, you’re regularly enticed to fail at reaching long‑term success.
Data tends to show that your long‑term success is based on managing your emotions, not on investment timing or investment selection. We want to think how, when, and what we invest in are the ultimate decisions to be made. But they’re not.
The real decision is simply to start. When you begin to understand the three factors I described above, then you will have the probability of success in your corner.
Not only that, as we’ll discuss in coming months, you might find that investing and owning these great companies becomes fun, instead of stressful or full of anxiety.
If you’d like to have a conversation about how investing can be enjoyable, give us a call at (985) 727-0770 or email [email protected] We’d love to help you shift your perspective.
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[1] Average stock returns: Ibbotson SBBI (Stocks, Bonds, Bills and Inflation 1926 – 2018), From Stocks, Bonds, Bills and Inflation (SBBI) Yearbook, By Roger G Ibbotson and Rex Sinquefield, updated annually