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Stick to a strategy

Jan 24, 2020 | Heather Hardee


Learning to recognize and control your emotions can help you stick to an overall investment strategy

Couple meeting with their financial advisor

I recently read what I consider to be a brilliant article from Charlie Bilello.* He wrote about 20 Rules for Markets and Investing. None of these are new to you or me, but rather reinforced small truths that often get overlooked. We get caught up in the day-to-day minutia and rationalize why we’re making a particular decision. I guess this could be true in all aspects of life. One of the “rules” Charlie wrote of is sticking to a strategy, and I couldn’t agree more.

An impossible task

We recently wrote about our approach to investing via tranches. I can’t imagine what our portfolios would look like if we took a tranche approach for some and an all-or-nothing approach for others. Portfolios would be terribly inconsistent and it would be nearly impossible to manage these two strategies effectively.

Sticking to a strategy requires a great deal of discipline to execute. Determining a strategy and having the willpower to stay the course will be the most meaningful over long-term portfolio investing. However, like Mr. Bilello states,

“Identifying the ‘best’ performing strategy is an impossible task, but harder still is sticking to such a strategy.” 

He offers evidence in the form of the “fund of the decade” which gained over 18% annually, which was more than 3% better than its closest rival (Source: Wall Street Journal, “Best Stock Fund of the Decade). While the fund gained, shareholders actually lost 11% annually. Why? They didn’t stick to a strategy and only bought after strong performance and/or withdrew funds after weaker performance. We’ve all heard the adage “buy low, sell high.” They did the exact opposite, unable to stick to their determined strategy.

You’re being emotional

Another of Charlie’s rules is learning to control your emotions or they will control you. He talks about the two most powerful emotions, which we’ve also written about often: greed and fear. There are more times than I can count when the outlook is grim: stocks are falling; markets are red; fear is overwhelming. You’re afraid you’re going to lose it all, so you sell to end the pain. One the flip side, when markets are rising, you buy because you want those future gains. Without a strategy, your emotions can and will become the guidelines by which you invest.

Buying high and selling low doesn’t work out for many. Think about how you felt December 24, 2018. The Dow was down 663 points and I’m sure you felt sick thinking of your portfolio losses. You probably sold some of your positions in a vain attempt to alleviate that pain. Personally, I hated watching the market that day and I’m glad it was only open a half day. It was gut-wrenchingly difficult, but we held our positions steady and didn’t sell. Fast forward about 36 hours to the day after Christmas and the markets came screaming back. Recognizing our fears and NOT acting on them was an advantage to our clients. Trust me, it was difficult because we’re human and felt scared—but we had a strategy and knew we needed to stick to it. Recognizing greed and fear in yourself or within the markets will help you stick to your strategy.

It takes discipline

Harnessing your emotions and sticking to your strategy simultaneously takes tremendous discipline. Buying when outlook is grim and fear is prevalent is incredibly difficult. Your gut is telling you to do the opposite—dump the investment, cut your losses, use them to offset future gains, and call it a hard lesson learned. But that’s not part of the strategy. Buy low. We know ultimately that investment will return to former prices and possibly break out from there. Control your emotions and stick to the strategy.

The exact opposite is true as well: it’s difficult to sell when your investment is performing beautifully. You don’t want to miss out on future gains, and you want more dividend income, so you become greedy wanting more. Sell high. Again, control your emotions and stick to the strategy. First recognizing your emotions and then controlling them when it comes to investing is terribly difficult, especially if you don’t do it often. It becomes even more difficult if you’re nearing or are already enjoying your retirement years: you know you have a finite amount of money you’ll need to last and that thought alone often drives a lot of investment fear. But finding the strategy that works for you is critical to making progress toward and eventually enjoying your financial goals.

If you need help defining your strategy, or if you’re looking for a different one altogether, call or contact us. We’re here to help you stick to your strategy. 


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