New Year’s Resolutions 2022/2023: Consistency of a Sustainable Effort and Respectable Results
It’s that time of the year again. The Earth did a full circle around the Sun. A year ago, about this time, I wrote a short article about New Year’s Resolutions (read it here). I mentioned how many may like to set ambitious goals, but it’s the process built on helpful habits that lead to favorable outcomes in life and especially investing. A year later, I have further thoughts and observations on the topic, I call it: consistency of a sustainable effort & respectable results. Let me explain.
Year in and year out, The three most popular New Year’s Resolutions cover healthier eating, more exercise, and saving money. Right after better food and more physical activity, our attention falls on money.
Investing attracts people because it seemingly offers sudden and glamorous success, as the media would like us to believe. Those who stay in investing favor consistency and show up every day and do just enough. Their success relies on compounding, as in growing on top of the previous day’s or previous year’s accomplishments. They are not here to win any short-term race. They are not in any race at all. They are in investing for a lifetime. Others may even think of generations, as it happens for many of our clients.
The game of investing, if that’s what you’d like to call it, becomes an infinite game.
James Carse, in the beautiful book: “Finite games and infinite games,” wrote: “There are at least two kinds of games: “One could be called finite; the other infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.”
What can allow us to continue to play better than not losing it all or a big portion of the capital?
We look at each individual decision differently when we think of a lifetime or lifetimes. If a client shares that they have a 1-year or a 5-year investment horizon for a particular capital, we plan differently than if we have an open-ended, infinite horizon in front of us.
Either way, investing is not something you truly successfully do once every blue moon. It’s a lifelong pursuit — a very beneficial part of life. It can help grow savings to a very meaningful nest egg; it can also perpetuate a family fortune over many generations. We also see it as an equally rewarding intellectual pursuit.
Last year, I wrote about the process and habits. I mentioned a few books that tell us about the benefits of daily habits, not just in investing but in any other pursuit.
This year, I have been watching carefully our own investment process and daily, weekly, and monthly routines. I took careful note of client expectations and tolerance for risk as we went through a sell-off, a rally, and another market weakness in the last two years. I was looking for a simple formula that would sum it up.
As I was going over my notes for this article, I thought of two concepts, sustainable effort & respectable results. If I told you that I want to get fit and I will run and win a 400-meter sprint every weekend, you’d be polite and likely say it’s a worthy goal to pursue, but the chosen path might not get me there.
Yet, when someone tells you they can double your money in 7 days, their newsletter likely breaks records, even if only thanks to curious clicks! — just in case there is some secret path to instant riches!
There is no difference between the two. Yes, it may happen that you double your money in a particular investment in an unusually short period of time, but it’s unlikely you’ll do it over and over again.
I remember a particular stock that we bought. It sold off dramatically after some failed new product launch. We assumed the business remained healthy and would recover. Apparently, we weren’t the only ones watching it. A competitor scooped it up at a 90% premium shortly after that! It was the fastest gain in a single stock, I remember, and we owned it in significant quantities. I still think we would have realized a very respectable return on it over a long period of time, but that overnight buyout was a total surprise.
It wasn’t sustainable, and when you really think about it, it’s an impossible promise to get that kind of quick return too many times in your lifetime. That’s not something we count on or hope for.
What we rely on is a sustainable effort. We often share how we aspire to grow our clients’ capital at a 5-15% rate or seek to double it every 5 to 15 years. Over a long enough period, those very respectable returns could compound the capital to a large amount that could help our clients meet their goals, maintain their lifestyle, and more. That’s the aspiration.
How do we get there? We don’t promise to win 400-meter sprints on a weekly basis; we show up every day. Borrowing Warren Buffett’s words, we tap dance to work. We enjoy what we do; we like the process. We research one stock at a time; we add it to the portfolio if it meets our criteria.
We built the financial future of our clients one brick at a time. That’s the consistency of a sustainable effort.
Great things can happen if you have time and larger capital on your side. The rate of return doesn’t have to be eye-popping; it’s enough if it’s respectable. It will likely happen mostly because we do our best to avoid dramatic drawdowns. Our stocks will often drop when the market drops, but because of the make-up of the portfolios, it’s usually less severe than the overall market.
We consider the 5-15% range as a respectable result, a level we have the potential to reach consistently over long periods of time.
2021 was a trying year, not just because of the consecutive COVID lockdown waves but also because the markets rose and attracted a lot of short-lived enthusiasts. Stock investments got too boring for some, even for previously very serious and disciplined investors. Alternative assets garnered more attention, cryptocurrencies, NFTs, illiquid assets, private deals, SPACs, hot venture capital, and more. In many cases, these proved to be the promised sprints, whose trajectories now resemble more base jumping without a parachute than anything else.
Many investment ideas tried to defy gravity like many other hot investments in the past, and they failed again. I mentioned earlier how 2021 is in a category of its own. I have never seen the fear of missing out get to so many. We took Rudyard Kipling’s (a famous English novelist) almost century-old advice: “If you can keep your head when all about you are losing theirs…” We followed the wisdom of a legendary value investor, Jean-Marie Eveillard, who said: “I would rather lose half of our clients than half of our clients’ money.”
Both adages served us well last year, and throughout our careers.
2021 aside, 2022 felt like a cold shower to many former market enthusiasts. We stood on the sidelines of the madness and often emphasized that what we choose NOT to buy matters as much as what we do buy. It felt like an empty mantra as the markets rose in 2021, but 2022 gave us some intellectual and financial reprise.
The money we don’t lose matters as much as the money we make, or maybe even more! We always remember that a 50% loss takes a 100% gain just to get back to even. The math is rather cold and brutal when it comes to losses.
We go a step further and say that we do our best to avoid zeros. These are investments that can drop all the way to zero. We might have had some lemons, some sour ones too, but zeros we avoid at all costs.
As a Team, we all share a great risk aversion as much as our lifelong passion for the market and stock investing. The no-zero policy was ingrained in me over the years because of the many lifelong investors I got to work with.
Our lack of tolerance of zeroes beautifully complements the infinite game mindset I shared at the beginning.
With that framework in mind, when I sit down to review a portfolio and think of return expectations, I think of what we started with – consistency of a sustainable effort & respectable results. We won’t ever promise to double your money every week, but we will continue to aspire to deliver respectable returns over the long run, and we trust our process and showing up every day will help us get there.
As William Durant, the famous historian, once said: “We are what we repeatedly do. Excellence, then, is not an act but a habit.”
We believe that consistent good habits with sustainable effort will continue to lead us to respectable results.
We are grateful to have served you yet another year and look forward to many more decades as your trusted investment advisors. Thank you!
Happy Holidays! Happy Investing!
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