In the lead-up to the 1992 NBA finals, a reporter who was looking for an angle for a story about the opposing superstars asked Clyde Drexler of the Portland Trailblazers what the difference was between him and Michael Jordan of the Chicago Bulls. Drexler, who fancied himself a shooter, in addition to being a high-flying showman like Jordan, took the bait and said the difference between them was “the three ball”. Without saying it explicitly, he was implying that he was a better three-point shooter than Jordan. When Jordan was asked for his reaction to Drexler’s statement, he told the reporter, “Clyde is a better three-point shooter than I choose to be.” Then, in game 1 of the series, while Drexler struggled to make shots, Jordan put on an all-time show and shooting clinic - first by making five straight three-pointers and then by giving us the iconic “shoulder shrug moment” as he jogged back on defense after making his sixth in a row.
There are equivalent Jordans and Drexlers in the investing world. People who appear as elite to us and whose investment performances seem to be beyond what we are capable of ourselves. And while it may be true that we will never be as wealthy as Warren Buffet or any number of other famous investors, there’s nothing preventing us from achieving the same kinds of returns over time and in percentage terms. If we aren’t doing that, it may fairly be said that they are better investors than we choose to be. To remedy that, we should learn (or remember) a few things:
Most of our investment returns are based on our asset allocation. The weighting between “safer” investments like bonds and “less safe” investments like stocks is responsible for most of differences in the gains/losses in a portfolio. A very conservative investor who tends to lean towards bonds, for instance, and has, say 50% invested that way, won’t make as much money as somebody who has gotten comfortable with the inherent risks of stocks and has gone all-in.
Our most important strategy is diversification. No matter how good a company or sector is, there will be ups and downs. The best way to deal with that volatility is to spread our investments out and increase the chances that while some companies or sectors are down, others are up. Being concentrated certainly increases our upside if our picks pan out but it also leaves us equally exposed to the downside.
There is no strategy that outperforms all the time. Whatever our benchmark is, there will be periods of time where we are underperforming relative to it. But, If we’re investing in well-run companies, the likelihood is that over time our investment returns will be positive. Day to day fluctuations or short-term periods of underperformance should not cause us undue angst or overreactions (like selling). That is not to say all news should be ignored but rather that it should all be put on the proper time scale.
It's time in the market, not timing the market. If we want to make money investing, it’s about how much time we are in the market rather than getting in at just the right time. Missing the best days because we are waiting for just the right time is extremely costly to investment returns as the chart below points out by showing the impact of missing the best days of returns over 1-year, 3-year, and 5-year periods. As you can see on the 5-year scale, missing the best 10 days represents the difference being up 9.3% or being down .8%. When it comes to investing, slow and steady is never a bad strategy.
Much has been written about the effect of globalization on jobs and wages in response to the recently renewed calls for a dramatic increase in the minimum wage. The explanation for the current "low wage levels" is one that is covered very early in most Economics 101 text books: capital tends to flow to where it is used most efficiently. What that means in practical terms is, if I run a business and I need to purchase labor, all other things being equal (or even close to equal), I will buy that labor from the most inexpensive supplier of it, even if I have to cross an ocean to get to that supplier. That's the story of manufacturing here in the US. That's the story of fast food workers (without the ocean crossing), and on and on.
So the solution for an individual in a low wage job is not to have his Congressman work to get minimum wage laws passed in his favor, it is to acquire skills that will command a higher wage for him on the open market. Those pictured below, who should be applauded and emulated, seem to have figured that out. But take a closer look at the picture and read the caption. Then, if you notice anything peculiar, ask yourself, why is that and what can be done about it?
Thing Three
Just A Thought
"We want solutions, but what we really need are attitudes.
You don't need abs, but rather an attitude of training. You don't need the answer, but rather an attitude of curiosity. You don't need an easier life, but rather an attitude of perseverance. Attitude precedes outcome." - James Clear
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