Your Greatest Advantage — Weekly Observations for 8/10/2018

Are you investing for returns this year, or do you have longer-term goals in mind that your assets will eventually fund?

Hopefully, your answer is that you are funding long-term goals and many years (a lifetime!) of income. Not only is this your greatest advantage as an investor (more on that below), but you’ll also be sorely disappointed if you expect short-term gains year after year.

Case-in-point: 2018

Following the sharp rise in stock prices during the last quarter of 2017, then the nearly overnight drop in stocks early this year, global stocks have gone nowhere in 2018 — trading in a narrow range without breaking the high or low made in January/February.

It’s the same story in the world of fixed income. Interest rates rose sharply through February, and are essentially unchanged since then, oscillating around 2.9% on the 10-year U.S. Treasury.

This type of churning without any clear direction is very normal in markets — and boring! It is during these periods that many investors get anxious to make changes. Not changes to capitalize on new opportunities that are being created by the price swings, but simply change for the sake of change — and often by looking in the rear-view mirror to see what was working in years past. The average investor holds a security for less than a year before jumping ship and trying something new, and the outcomes from this behavior are disastrous for long-term wealth creation and preservation.

One of the greatest advantages you have as an individual investor is the ability to hold a longer time horizon than most when you view your investments. When impatient investors sell assets and jump into the latest trend hoping to pick up the last pennies on the tracks, this creates a mispricing of the assets and an opportunity for investors that take the long view.

Today’s trend toward the capitalization weighting of portfolios and the exclusion of low-float investments from portfolio composition is making the advantage for long-view investors greater than ever.

Last weekend a crowd of 28 family members from across the country gathered at our home to celebrate my parent’s 50th wedding anniversary. Their 50-year legacy stretches from California and Oregon to Virginia and North Carolina — and it was great to have everyone together! It was a perfect celebration and a perfect example of taking the long view.