Don’t Let Your Investment Plan Crash With The Markets
Just after Thanksgiving a few years ago, jumping into the holiday spirit, Monique and I drove to the Cow Palace to see the Dickens Fair.
The roads were wet with the first rain of the year, so I was more cautious than usual. I don’t particularly enjoy driving on the freeway since I left my daily commute over five years ago. When you don’t do it every day, it seems much more dangerous.
Heading up 680, traffic was relatively light, and I noticed a large red SUV coming up the onramp at Stone Valley. I wasn’t looking specifically at the SUV, but as a mindful driver scanning the road, it just caught my eye.
As it was accelerating to merge into traffic, I saw the tail end slide left just a bit and then immediately swing right, pointing the head of the car directly across traffic.
Sure enough, the steering stabilized, and it speeded perpendicularly across the freeway – right in front of us.
At that moment, things started happening in slow motion.
There was a car in the lane to my left, just in front of us, and I had time to hope (or was it pray?) that they would miss it. They didn’t.
Instead, they plowed right into the side of the SUV, t-boning them in the middle of the freeway at speed. I never saw any brake lights, and there was no swerving.
The crashing sound was not as loud or violent as you might think – I blame all the extravagant, fake car crashes I’ve seen on TV for that.
Seconds later, another car, the one in the furthest lane to the left, also t-boned the SUV.
Once we were past the accident, Monique was on the phone with 911 to report what we had just witnessed. After hanging up, she began alternating between concern for the people in the crash and complimenting me on my driving.
We’ve had some close calls before, and I’m grateful for Monique’s faith in my abilities, but this left us a bit shaken. I distinctly remember not only what happened in the accident, but exactly what I was thinking and how I reacted.
As soon as I saw the SUV lining up to come across the lanes in a way that no one ever intended, I did three things without thinking:
- I gauged whether my current speed would cause me to hit the car.
- I recalled whether someone was in my blind spot to the right.
- And, I determined I could be wrong about my blind spot being clear and decided to only swerve as much as I thought necessary, and did so.
I did not touch the brakes – there was no need, and I had just seen what could happen on the slick, wet freeway.
I did not honk my horn – what good would that do?
And, perhaps most importantly, I did not shake the steering wheel back and forth undecidedly – that probably would have caused me to wipe out too.
By the time the above took place, the accident was over. Looking back, my swerving probably didn’t make a difference – but it would have had there been a car or God forbid a motorcycle.
I wouldn’t say that the motions I went through were some divine intervention or thought process. It mostly came from the training I’ve received – whether formal, some 35 years ago, or informal through experience since then.
What I will say, however, is that I do, in times like these, have a straightforward philosophy that I stick to. Get through the accident with as little damage as possible – to myself and others.
This has come to mind on only a few occasions, but it’s one that most certainly kicks into gear when I am at risk of being in an accident, and I think that’s what makes my wife believe I am a good driver.
In many cases, philosophies are the basis for how we think and plan. If you can see how my simple driving philosophy helped here, perhaps you can see how an investment philosophy may help when it comes to your money and the market.
You see, there are more profound thoughts, values, and beliefs that drive our actions, and many times we don’t recognize them. It is crucial to understand what they are. The more we know about our philosophies, the more we can test them through experience and ultimately make better decisions.
An investment philosophy will also increase the confidence you have in your investment decisions. It is the backbone of everything you do with your portfolio.
If you are in your 50s, you will probably see a crash similar to the dot.com or liquidity crisis about 4 to 5 more times during your life.
When this happens, we won’t know how far down it will go, how long it will stay down, and when it will recover, or even why.
What we will know, and we can say this with history 100% on our side, is that the markets will recover. They always have.
So, while we can’t predict these crashes, we can, however, prepare for them by constructing an investment strategy that allows us to survive. It may not be easy, but it will be worth it.
In the next market crash (and every one after that), the world will seem like it’s falling apart. This is especially true if you are in your retirement years, and relying on your portfolio to pay for your lifestyle.
Everyone will tell you, “This is the end,” and “You should move to cash” even as the markets recover.
Your investment strategy and your personal resolve will be tested. But, even at your lowest point during the crash, you will refer back to your philosophy and ask one key question, “has anything truly changed?”
With a rock-solid investment strategy in place, you can withstand all of the market crashes we will face. And woe to those who don’t have one, because they will flail.
Building a portfolio that has a defined goal, like the rest of your expenses throughout your life, must come from a solid philosophy that remains true in all seasons.
My Investment Philosophy
We, as human beings, are designed to connect.
The social pain we feel when being snubbed or finding ourselves lonely is genuine and affects us mentally and physically. We are not designed to be isolated or to hermit ourselves. We simply don’t work that way.
Companies enable the connections we make as human beings. If you buy a hot dog at Costco (and I highly recommend it), an untold number of companies earn a profit – from the hot dog and bun manufacturer to the employee who placed that lovely bit of joy into your hand.
Companies exist to enable human connections. And they must make a profit to do that. Their profit growth over time must be higher than inflation – otherwise, they will eventually fail.
By owning companies to fund our future spending, we are tying our wealth to overall growth in the world as people connect with each other. More people and more connections will bring more profits and growth in your wealth over time.
And these connections will continue to increase. Think about it like this, every day:
- 300,000 people gain access to clean water
- 325,000 people gain access to electricity
- 600,000 people get online for the first time
Owning companies taps into the second most significant force on earth (after love): human ingenuity.
Since we cannot pick the winners, we will own the markets. Properly diversified strategies, as I see them, can look like this:
- 72 million employees providing the services and products that bring people together
- 12,000 company CEOs working each day to increase their profits
- 192 countries that offer headquarters for these companies
- $41 trillion in market value and $2.4 trillion in annual profit
With force like that, how can you lose?
What Gets in The Way?
Don’t let these actions squander proven portfolio growth or protection.
Unfortunately, this philosophy leads to a very dull portfolio. You won’t have sexy stories to share at cocktail parties, and everyone you know will tell you you’re doing it wrong or just won’t say anything at all – your loss, right? Uh, wrong! And if they also subscribe to this philosophy, there will be no need to discuss it because they know.
No one has been able to predict the markets in a consistent, statistically proven manner, yet everyone believes they can – if only for a short period of time. I’m no different. It’s somehow part of our human nature, so I allow for a bit of leeway to “express yourself” through your portfolio. But let’s temper that so we don’t blow ourselves up. Most importantly, let’s remember to protect the plan.
There will be long periods where it feels like it’s not working. You will want to “do something,” not realizing for a moment that the markets themselves are entirely beyond your attempts to control them.
Here’s the Good News
This philosophy has always held.
Since the first caveman said to his neighbor, “You hunt, I’ll protect,” we have been looking to work together for what we want.
Even after the devastation of Hiroshima, when the landscape looked like the moon, and so many had perished. Survivors immediately started to rebuild. Banks, public transit, and even a steel manufacturer reopened in just days.
Once you genuinely connect with this philosophy, your stress level about your investment strategy will drop. You will finally see that there is hope to structure and implement a portfolio that cannot completely collapse and disappear.
It is at that point that you can finally turn your full attention to what is actually important and what you can truly control: your plan.