Ink ruled the morning in that darkest hour before transition to dawn… the time when the night darkness reigns cloaked in black.
We had just conducted a seminar in North Carolina and delegates had visited the farm. Many took a walk though our woods. Upon their return, they complimented me on the quality of the large, black bull in our apple grove eating the fallen autumn apples.
“Bull,” I asked? “We don’t have a bull! We don’t allow any cattle at all.”
They assured me that there was a large, black bull in our woods. They were right. Later our neighbor called and warned me that his bull had escaped. “Be careful, he’s a mean one,” he said.
This farmer assured me that he would catch that bull that same day and we ended the call.
Next morning, I took my customary walk, about a half mile, through the woods to my office.
Our office in the woods at our farm.
The view was its typical inky black and one of my visual challenges is lack of night vision so I have learned to enjoy this early walk by feeling rather than seeing the path.
The view on my morning walks to the office.
Enjoyable? I always love my walks in the dark… except that morning I was having second thoughts… something like this. “That bull is black. I am walking right past our apple grove. If Jim (my neighbor) didn’t catch that bull and I bump into him in the dark, neither of us are going to be happy… especially me.”
Though I knew the path so well, I could walk it with my eyes closed, that morning that fear caused me to slip and slide all the way to the office.
Here is the point about investing. I knew that the bull was gone. I knew there were no hungry bears in the woods. Yet my imagination reigned so I lived that entire walk in fear. My body reacted accordingly and put me at risk.
Most of us are affected the same way when we invest. We all think we have discipline until our portfolio starts to rise dramatically or begins to crash badly. Our imagination takes over and sees unrealistic riches or unlikely poverty. We react in greed or fear and our discipline goes out the window.
Many react in the worse ways during times like now. The worst of the bear has been weathered. The bull has not started… and we want to do something. We want the market to hurry. Markets however are not impressed by our great desires.
This is why I was delighted with what John Mauldin had to say when he spoke at the recent Naples seminar that Merri and I co hosted with Jyske Global Asset Managers.
Here is John speaking at the Naples seminar.
John is a Fort Worth, Texas businessman with over 1.5 million readers to his emailed financial newsletter.
He was Chief Executive Officer of the American Bureau of Economic Research, Inc., a publisher of newsletters and books on various investment topics, from 1982 to 1987. He was one of the founders of Adopting Children Together Inc., the largest adoption support group in Texas. He currently serves on the board of directors of The International Reconciliation Coalition and the International Children’s Relief Fund. He is also a member of the Knights of Malta, and has served on the Executive Committee of the Republican Party of Texas.
He is a frequent contributor to numerous publications, and guest on TV and radio shows as well as quoted widely in the press.
Here is an excepts from one of John’s newsletters that expresses his view of discipline.
Seriously, buy and hold in a secular bear market like we are in is a losing strategy. On an inflation-adjusted basis, you are down if your holding period has been 30 years! Most of us would think that 30 years is the long run! On a nominal basis, you are about where you were ten years ago, if you are in a broad index. Even if you are a value investor, you have gotten creamed in this market. (Some great value investors are down 60%. Their experience of buying and holding solid companies, which had worked so well for so long, needs to be married with some risk discipline.) You need a sell discipline. Barry’s [Ritholtz] system, or others like it, can at least get you thinking about selling rather than riding a stock all the way to the bottom and hoping it comes back. Hope is not a viable investment strategy. I don’t know much personally about trading. My stomach won’t allow me to trade, although I have watched and met with the best. But I do know this. The best traders and managers have risk controls and sell disciplines and they stick to them. Period. They don’t fall in love with a stock or a commodity position.
Thomas Fischer had a great interview with John during the Naples seminar which you can see here.
John’s speech was important because discipline is the glue that holds all investing theory together.
I believe that there are basically three types of investors… disciplined long term value seeking investors… disciplined short term traders… and losers.
Non disciplined investors always lose in the long run.
Warren Buffet reinforced this thinking when he stated:
Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” – Warren Buffet
Good investors are like great carpenters, they measure twice… cut once.
Our discipline should also relate to our individual time-frame and intentions.
Some investors are looking only at market momentum and technical factors. They totally ignore the market and stock fundamentals. Such investors are beyond day trading… they may be minute trading and often get quick results.
Investors who succeed at trading this way are those who study patterns, and can stick to a set of rules they find and follow. They invest only when conditions fall into the parameters that fit their discipline.
Otherwise they wait on the sideline.
Value investors do not believe that markets are efficient in the short term and look for divergence between the real value of a share and its quoted price. They buy expecting that the short term divergence will correct (upwards) in the long term.
One of Warren Buffett’s maxims that explains this goes something like this:
In the short term the market is a popularity contest, in the long term, a weighing machine.
The winning strategy comes from understanding the true net worth of a share, and its potential growth.
Value investors who succeed at value investing are those who can spend time studying and researching financial statements of companies. They have a detailed knowledge of financial statements, an ability to calculate the real net worth of a company and the time and desire to do this type of research (this is why I am not a big share investor).
Then there’s the rest of us folks.
This is why managing their portfolio manager at Jyske Bank or JGAM, or wherever is often the best strategy for most investors.
There are 32 combinations available for US investors.
First, both Jyske Bank and Jyske Global Asset Management offer four types of accounts, low, medium, high and speculative.
Second, these accounts can be leveraged or not. Recently a low risk managed account with one time leverage has performed better than a high risk account. (This makes eight variations.)
Then the portfolios break down in with or without US investments (16 variations) and finally with or without US investments (32 variations).
Managing the variations to suit one’s individual needs is more than enough for many of us.
The foundation of our investment strategy is PIEC Investing with three stage layering.
PIEC investing begins with your own business. A total PIEC portfolio comes in three layers, first the business, then a layer of very safe investments over a third, much smaller layer of speculative deals.
The majority of PIEC diversification should be in stodgy, liquid investments such as utilities, CDs and bonds. These investments might pay little in the short term, but are safe and they are highly liquid at a known price. The low return on these investments is acceptable because they support your PIEC business which makes profits like few other investments can. These very safe investments act as reserves if your business hits a sticky patch and can provide ready finance if sudden business opportunities arise. They also don’t take up much time in research, accounting, watching the market, etc. so you can devote your energy doing what you love (your business) instead.
This second layer is the portion of the portfolio usually left with an investment manager.
However, if you genuinely love researching and tracking the market and have the mentality, capital and experience and TIME for it, just being an investor can be a wonderful PIEC business in itself.
The third layer of diversification can be speculative because modern portfolio theory suggests that safe investments are enhanced and made safer by adding a small amount of higher risk deals. This also allows us to fulfill any casino mentality we might have left if having our own business is not enough.
Investing discipline is great in the theoretical world. It is rare in the real world which is why most of us will benefit when we have a disciplined investment manager look after the second stage of our wealth.
Save $249! Enroll in our July 24-26 International Investing and Business Made EZ seminar here
We enhance our emailed course with regular international investing and business seminars that I conduct in coordination with Jyske Bank and Jyske Global Asset Management.
Join me with Thomas Fischer of Jyske Global Asset Management and my webmaster David Cross in North Carolina July 24-26 IBEZ North Carolina
We’ll have a New River wine tasting at Bohemia Gallery as we did last year. here are delegates at that tasting.
Our North Carolina courses in 2009 will be conducted in the new…
West Jefferson Hampton Inn.
Just opening this June 2009 with very nice rooms and…
views. I took these from the hotel’s parking lot.
Save $249! Enroll in our July 24-26 International Investing and Business Made EZ course here
Here is what one reader wrote about our last seminar.
Hi Gary, Just a note to express our appreciation for a great event. The Naples Beach Hotel provided a comfortable setting for the gathering. The hotel should be congratulated for the excellent food and service. We enjoyed all of the speakers. I particularly enjoyed John Mauldin. I have followed his writings over the years. In 1994 we attended several of your seminars, I enrolled in the Multiple Currency Course and opened an account with Jyske Bank. This activity has provided us with a nice retirement income over the years. With economic disruptions world wide I decided to become reacquainted with currencies as an investment tool as a consequence of my very dark view of the USD’s future. Keep up the good work. My day is alway brightened by your daily emails.
Save $249! Enroll in our July 24-26 International Investing and Business Made EZ course here