Plodding Like A Tortoise
A video did the rounds on Financial Twitter (#fintwit) last week. It seems that the account it belongs to (@chadandjenny) has since been suspended for violating the Twitter Rules. In the video (which you can check out in Nick Maggiulli’s blog post) a young couple respond to the question, ‘how do you afford your travelling lifestyle’.
The answer comes, “so basically I just trade stocks on an app called Robinhood (followed by blub about Robin Hood). I know trading sounds intimidating …here’s my strategy in a nutshell. I see a stock going up and I buy it and I just watch it until it stops going up and then I sell it. And I do that over and over again and it pays for our whole lifestyle.”
It’s pretty funny. Except I don’t think they were trying to be funny.
There is so much that I could say about it. Nick likens it to someone who has never played basketball before making 10 shots in a row. Imagine watching that. You’d ask, how on earth did you do that? “Oh, I just throw the ball up in the air and watch it go through the hoop.”
The thing is though that Chad and Jenny have made money. They’ve made a lot of money. As have a whole generation of TikTok investors (did you know there was such a thing?) since the start of this bull market in March. The stories are everywhere. Young people, bored whilst stuck at home due to COVID, have turned to trading and the stock market has become a giant game with individual stocks becoming totally removed from fundamentals or any sense or reality.
Morgan Housel writes:
“Most financial advice is about today. What should you do right now, and what stocks look like good buys today? But most of the time today is not that important. Over the course of your lifetime as an investor the decisions that you make today or tomorrow or next week will not matter nearly as much as what you do during the small number of days – likely 1% of the time or less – when everyone else around you is going crazy.”
People go crazy during the boom and the bust. We saw the bust last year. Now we are in the boom. Whilst I don’t think the entire stock market is in a bubble (read my year-end newsletter for more on that), there are undoubtedly bubbles in certain parts of the market. We could call it a mania. Stories like Chad and Jenny’s make it feel like a mania.
The defining feature of a mania is the feeling that everyone around you is getting rich. Warren Buffett once said, “there’s nothing more agonizing than to see your neighbour, who you think has an IQ about 30 points below you, getting richer than you are by buying stocks.”
When others are going crazy, we remind ourselves of a few principles.
1) We diversify because we admit that we don’t know what will happen next. Diversification means that we will never own enough of one thing to make a killing in it, or too much of one thing to get killed by it. Again, we will never own enough of one thing to make a killing in it, or too much of one thing to get killed by it. We know we are diversified when we look at our portfolio and see something we wish we didn’t own. If everything is going up at the same time, you almost certainly aren’t diversified.
2) We understand that, at this point in our lives, we can’t bet it all on red. We have worked hard for our money, we have responsibilities. We have people that depend on us not screwing up.*
3) Our goal was never to get rich quick. Getting rich quick can mean going broke fast. To quote The Sage again, “sound investing can make you very rich if you are not in too big a hurry,” – Warren Buffett.
4) We take an indexing approach because that guarantees that we benefit from capitalism, human progress and innovation and that we will always own the best performing stocks without having to guess what those will be in any given year.
Aesop told the fable of the Tortoise and the Hare in 500 BC – that’s over 2,500 years ago. You know the story, your children know the story, we all know the story. Anything that has endured for that long is worth paying attention to.
The Hare is wonderful in short bursts (between which he takes a nap), and the Tortoise plods, slowly and steadily.
As a broadly diversified investor in the great companies of the world we are plodders. We have been plodding along at around 10% a year for the last 100 years (is that really plodding you might ask).
Let’s continue to plod. We have Hares all around us, but we know who wins the race.
*If you are young and in the early stages of earning money and are playing around on Robinhood or another app, maybe you can afford to bet it all on red (you are not investing, you are speculating). The sums of money are probably small and you have time to make it back when it all comes crashing down. Just know that the crash will come, and as Warren Buffett once said, ‘A rising tide lifts all boats. Only when the tide goes out do you discover who has been swimming naked.’
Georgie
Georgie@libertywealth.ky