This winter I was trying to convince my kids to sign up for the local softball league this spring. No way; weren’t interested. This morning as my son and I were playing catch I pointed out that he had a great arm. Actually he’s a natural athlete at most sports; yet time and again I find he is reluctant to try new things. When I asked why he had rejected baseball this spring, he uttered a reply I have heard often lately, “I was afraid I wouldn’t be good,” he explained.
This thought connected with a book I finished yesterday called “How Starbuck’s saved my life.” Great little book. Not only did it give me a fresh respect for Starbucks as a company but the author’s inspiring true story reminded me of this recurring life theme: we have to take personal risks to grow, and some times the very best thing that can happen to any of us is outright failure.
Recently it seems reverberations on this topic have come to me through many different people:
Many investment managers and advisors have failed completely in their duty to protect their clients over the past decade. Many feel depressed and ineffective in their work, and yet to this day, few are admitting their mistake and using their failure to direct a better course. Most are still mumbling things like “timing markets is very difficult,” and “I’m just not that smart,” as if this some how excuses them from making any effort to improve their approach, go back to the drawing board, do further work.
No one achieves perfection in market timing; let’s get over that idea quick. But research shows that just developing a method to capture just 30% of the up cycle and avoid 2/3rds of the down cycle will kick the pants off of passive allocations over a full market cycle. Those who aren’t prepared to put in the work and discipline to develop even a “good” method for this are right to admit it; but then they should also find another career where they can add some value.
People in many sectors are now facing under-employment in industries that are antiquated or over-supplied in this economic downturn. Every week I hear from readers and acquaintances that need to retrain or re-sculpt their career path. Many are now suffering great apprehension and anxiety; most have feared these changes would come for some time. Few have done anything pre-emptive to start the personal growth in advance. Often it seems people need to lose everything first before they can find the will to retrain.
Repeatedly people facing the need for big change will fall back on age, physical limitations, education, class, societal expectations, status—anything and everything that can justify inaction. “Its not easy you know,” is a common refrain. (No one said that it is or should be easy); or “If I can’t do it right then I won’t do it at all.” (Who decides when something is right?); or “I’m a perfectionist” (good luck, then you have failed already because there is no such thing as “perfection”).
Fixation on a sense of entitlement or notional standards of “perfection” is a potent antidote to serious effort and growth. And by the way it is not “easier for other people.”
Everyone struggles with the weight of the work needed to be done. A blank page taunts all who face it. But if we want to write a book, or start a blog, or get fit, or retrain or found a business, we have to start today. Get up extra early if we need to find the time, but get up and get at it. We won’t be perfect. We probably won’t even be good–certainly not at the beginning. But only those that get started are the ones who can become.
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Hi Danielle,
Your post made me chuckle. In a way, maybe it's fear of making a mistake that's holding me back from acting now. I was able to sidestep the downturn in the market but now have NO idea what to do next. There is so much information out there….and so many opposing views, many of which appear to have some validity. Which one is correct? So, I sit on my cash position earning virtually nothing yet anxious to do something. Anyway, you gave me something to ponder.
Thanks,
P.C.
An important post, very well put Danielle. You are a philosopher as well as an analyst. We should not be surprised – to be an ethical financial advisor you must know (and care) about morals and philosophy.
May I share with your readers an ‘Invocation for new beginnings’ from Carol Osborne from her book ‘How would Confucius ask for a raise?’
All that is truly meant to be mine will be returned to me in time.
Even if I fear I do not deserve it.
Even if I fear I have thrown it away.
May I remember that any moment can be a turning point.
I can begin anew the moment I envision the best rather than the worst potential outcome.
Although I find this difficult right now, I can make myself receptive to new possibilities that arise from outside my existing expectations and experiences, trusting that everything that happens to me has a purpose.
From my limited perspective, I see only the small patch of darkness surrounding me. But even here, I can have faith. For my willingness to invoke my higher self shines like a beacon of light showing the way through the darkness quenching my regret with the comforting thought:
Where else but in the dark could light shine?
Hi Danielle. I have read the Intelligent Investor on your recommendation. Dry reading, however a rational voice on investing and the markets. Will definetly read it one more time..
Graham does not recommend, however sees nothing wrong with making stock purchases of diversified stocks fullfilling his criteria, or a broad market index on a routine basis. Equivalent purchases every month or quarter over a long period of time except when the stock market is priced too high. How do you feel about this formula investing?
The SP500 pe ratio is about 16 today, up from 11.5 only a few weeks ago. The 100 yr average is about 17. With earnings decreasiing the the pe ratio will move higher. At what point do you feel the SP500 would be overpriced.
Also, the ishares Brazil index has a pe of about 4. Just wondering if this would be a good time to buy?
Dean, yes it is a but dry but I think it is worthwhile for a few reasons. One is the historical perspective it offers on markets and valuation cycles. The other is that it suggests some fundamental metrics which one can incorporate into their own set of buy and sell rules. It also shows us that even the father of value investing had a challenging time with trying to pick buy and sell points, but still he argues you need to be aware of price risk. Notwithstanding that is is hard to do, he warns that the price we pay is our greatest risk and timing buy points well is critical to success.
As far as dollar cost averaging regular amounts into markets when they are relatively low, it sounds fine in theory. The missing part becomes what rule do you use to stop your adding more capital after markets have run up a long way. Also this approach is not that helpful for people in their 50's+ who have already amassed the lump sum of thier savings.
As far as pe's go, your math on that depends entirely on the “e” number you use, and there is a huge breadth of ways to calculate that which will give you PE numbers on the S&P anywhere from 20 to 289 today depending on how you smooth the earnings trend. Valuations still are not historically cheap at these levels. I suspect they won't be cheap for another 7-10 years when this secular bear market finally wrings out every drop of over-exuberance.
In the meantime we have to work carefully with the conditions and opportunities that we have. What we should watch for here is the start of the next cyclical bull market within this secular bear. It may have started since March already, it may start after another big correction this year, but once it does, stocks will rise in concert until the peak of the expansion and then we will see another big bear market very likey in the next 3-5 years. So if you are going to buy now or soon, also have an eye to when and how you will sell when needed.