Going, Going, Gone.

Going, Going, Gone. It’s the name of a song by Al Kooper. The song is a lament. It recognizes that things have changed, never to be the same again. Some aspects of life with which we have grown comfortable are no more, supplanted by new and different ideas, difficulties and opportunities.

(Note: If you are one of the 170 million monthly active users of Spotify you can listen to Al’s song by clicking this link. If you are not currently a Spotify user I believe you will be prompted to set up a free account, and then you can listen to the song. Warning: Al Kooper’s voice quality and singing style are what you might call “an acquired taste”.)

We live in a time of great promise and of great peril. Wonderful, and dreadful new possibilities occur almost daily. We, the people of Earth have learned much about our world, yet we still suffer because our knowledge is incomplete. As things change around us at an accelerating pace we tend to experience a heightened sense of uncertainty and fear. And by we, I do not mean people in my family, or my neighborhood, or my state, or my country. I mean all people. New possibilities and accelerating change are causing angst worldwide. Some folks with evil intent use new possibilities to create chaos, and to exploit fears.

So, given the times that we inhabit what should we as investors reasonably expect? In my opinion the fact that we now live in a rapidly changing global economy where anyone can immediately and globally publish and disseminate a deceit at no cost contributes to uncertainty and extremism which leads to, among other things increased market volatility. And the problem is magnified when used by political leaders vying for power. So, continued volatility is my expectation. However, that’s not necessarily a bad thing. See below.

The right strategy can lead to the right outcome. An investor who would suffer in the short term because her investments lose value should not be holding assets subject to volatility. That investor should be holding short term bonds, or bank certificates. That investor should also not expect to have a long-term return greater than the rate of general inflation. However, the investor who has other assets and/or income sufficient to meet her needs during short-term volatility can reasonably expect to experience long-term returns greater than the rate of inflation. And, if that investor systematically invests cash when particular asset categories are lagging she may amplify her return over time. This is what we attempt to do for our clients.

Take a moment to consider the compound annual returns for the investment categories below. Investors who are able and willing to withstand the volatility of equity investments have been rewarded with greater long-term growth. This is not to say that investors should only hold equities.

Investment category growth during the past 90 years.

Mental mistakes should be avoided. Psychologists and economists have determined that humans have a tendency to make certain mental mistakes. I would like to briefly discuss two of these now. The first is referred to as short-term focus. It is the tendency of a long-term investor to worry too much about short-term volatility. Consider the following images.

Long-term investors have a tendency to worry too much about short-term losses.

If you are a long-term investor you should think long term.

Sometimes investors make poor decisions because of regret. This error in judgement is sometimes related to overconfidence or hindsight bias.

Investors sometimes make poor decisions based on regret, assuming that they should’ve known when to buy or when to sell.
Note: Investor B might well be yours truly deciding not to buy Amazon, and I certainly do regret it!

An important consideration when developing an investment strategy is understanding what your true investment holding period is. In our experience investors frequently underestimate their holding period and therefore their need for growth. 

Frequently investors make the mistake of assuming that their investment horizon ends when they retire from work.

There are many more items that I would like to discuss here, but for now I will only mention two.

First, please notice the “green box” above, in the URL window. You should see not only the lock indicating that the website you are on is safe, but you should also notice that the company name is spelled out, probably in green letters. This indicates that an additional safety measure has been completed to assure you that you are on the site that you intended to view, and you have not been transferred surreptitiously to another, possibly malicious site. 

Second, please know that we hold you dear and hope that the approaching new year will bring you joy and prosperity!

Now, if you haven’t done so already click the link above to enjoy Al Kooper’s tune. It might be cathartic.

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