Fall in Love with the Process
What leads to success in investing? Many might think it’s setting lofty goals with precise deadlines. Some might believe it’s all about regularly beating market benchmarks, and others might focus on their portfolios’ daily, weekly, or monthly returns. The real secret, though, is to fall in love with the process. Let me explain.
Investing might look exciting from the outside, especially seen through unlikely sudden success stories embellished by gifted journalists. First-time, next-door investor buys a handful of exciting stocks and turns a small nest egg into an eye-popping fortune in no time – we have all heard a version of it more than once.
Investing is indeed intellectually stimulating, financially rewarding, and professionally gratifying, but day-to-day, it’s a process.
The process takes care, discipline, and patience. If there were one word to describe investing, I’d choose reading. If you asked me how I spent my days, I’d say I read. I don’t just read 9 to 5; I read all the time; any moment I find, I read. You’d be as likely to see me with an annual report of one of our holdings as a book about Artificial Intelligence or the Bronze Age warfare.
I read books, articles, studies, research, anything that I think can shed more light on possible investment opportunities out there, and anything that helps me better frame my worldview of where our investments operate.
There are three things I’m looking for. First, I want to know what kind of businesses I’d like to own. Second, I find the right price that I’m willing to pay. Third, I need to have a good understanding of the broader context in which the business operates.
The three aspects of the process can be continuously improved. The more businesses I learn about, the better I understand what makes them succeed or fail. The long history of stock prices I looked at, the better I can get at buying a business at the right time. Finally, the more open I keep my eyes to bigger shifts and trends at work, the fewer surprises my investments will face, and the more opportunities I will be able to identify.
When the time is right, we use this knowledge to buy, sell or decide to hold a particular investment. The buying and selling activity is a small fraction of the process. Outside of reading, the word that describes best what we do is – holding. We make money not by buying or selling stocks but by holding them. Small businesses become big, undervalued become relatively valued or overvalued. Finally, temporarily troubled holdings get back on track. We get rewarded for patiently holding what we own.
It’s equally important to identify and correct mistakes, but we take rare actions to get back on track. Nobody has perfect knowledge about the future, and the success or failure of our holdings happens right there – in the unknowable future. We can make the best-educated assumption about what’s to come, but we never know for sure, no matter how much we read and learn.
Since we are focused on reading and holding, we are less likely to make abrupt changes in the portfolio. We can be very decisive and act quickly when the opportunity arises, but otherwise, we remain still. In other words, we are less likely to panic when the prices fall, and we are less likely to follow any euphoria either. We stand firmly behind the process.
We often mention that what we don’t own and what we don’t do matters as much or sometimes more than what we own and what we do. Warren Buffett often reminds us of the rules of investing: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” We believe that our list of don’ts has saved us from many losses over the years.
We have come this far in our discussion, and I haven’t mentioned goals, outcomes, returns. I think that goals are helpful. They might keep us motivated when the process tests our resolve. They also remind us of where we are going. Having a precise deadline for the investment goals can endanger the process, though. If someone asked me how they could double their money in 3 weeks, I wouldn’t be able to help. If we make the horizon longer and even better set a wide range, the process we follow can help us get there. We like to say that we seek to double the capital every 5 to 15 years, which is a 5% to 15% return annually.
We are even further with our discussion, and I still haven’t mentioned benchmarks, indices. The media these days reports minute-to-minute movements in major indices. They represent the majority of the US stock market and intend to show if the markets are doing better or worse versus yesterday or even just earlier today. I often explain to our interns (who come armed with difficult questions) that even if benchmarks and indices were never invented, tracked, and reported, we would continue the process that works and makes sense for us. In other words, the S&P 500 or the Dow Jones are no guideposts on our journey. If the index operators announced tomorrow that they discontinue their benchmarks, it would make no difference to what we do.
We talked about investing as an exciting pursuit. Interestingly enough, the best opportunities happen when investing seems the least exciting, and the stocks are priced as if they were untouchable. Individual stocks and the whole market goes through cycles. For a patient investor, there are times when one can buy quality businesses at incredibly low prices.
It’s a historical extreme, but worth remembering – in 1979, Business Week ran an article titled “The Death of Equities.” We read there how only the elderly remained invested, while the younger demographic left. It must have been a polar opposite of today’s market sentiment. The 1970s’ inflation and market volatility ravaged investments at the time, and few were left interested in stocks. BusinessWeek concluded: “Today, the old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared.” This prophecy couldn’t have been more wrong. This unglamorous moment marked the beginning of the longest bull market in history.
Falling in love with the process helps in investing. To us, the process means reading and holding with a rare occasional deliberate action. If market benchmarks were discontinued and the media declared stocks dead again, we’d go on. Technologies may change, stocks, and currencies may come and go, but stock investing will continue as long as there are customers with needs and wants and businesses eager to fulfill them. We’ll be here ready to buy their shares while reading and holding in the meantime.
The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.