By Ryan Dolan
“Everybody has a plan until they get punched in the mouth.”
Mike Tyson
Willard: ‘They told me that you had gone totally insane, that your methods were unsound.’
Kurtz: ‘Are my methods unsound?’
Willard: ‘I don’t see any method at all, sir.’
Apocalypse Now
It never ceases to amaze (and depress) me how so many otherwise smart people make poor investment decisions. Though the big concepts and principles behind successful investing are relatively simple in concept-it’s the execution, day after day, year after year that often prove problematic. For something as critical as preserving and growing hard-earned savings over a lifetime-the act of building independence and security for you and those you love-why do so many resort to a pastiche of such ill-conceived, ad hoc investment approaches? For far too many, there doesn’t seem to be any investment method at all.
I’ve spent close to two decades looking over the portfolios of prospective clients. In the majority of cases, it’s hard to find the logical investment thread. Typically, the investor has little to no idea of the portfolio’s asset allocation, performance, fee structure, yield or tax efficiency. Worse, they often have no idea of how much their goals will actually cost, and how to build a plan and portfolio that has the best chance of getting them there.
I can empathize with people who manage their own money-investing well takes time, attention and emotional control. Most often, their portfolio is a grab bag of securities that sounded good at the time, but over time morphed into an incongruous mess, totally unfocused and unsuited to their needs. Less understandable are the cases where the person has been working with an advisor who has structured a wholly inappropriate portfolio. A far too common result.
Solid investing comes down to both science and art. The science is having a sober, serious, well articulated and historically informed process. But perhaps more important is the art: understanding and managing the very real and very human biases and misconceptions that we all have, and so often lead to avoidable investment unforced errors. The magic combination is a partnership that marries the hard skills of a sound investment approach with the soft ones of managing the client’s behavior.
Markets in 2022 have been volatile, with both stocks and bonds down mid single-digits. The former darlings at the speculation end of the equity market (and crypto) are down far more. This change in the investment winds, should it persist, could have a materially adverse impact on those operating with little investment process.
As always, when you find yourself in a hole, step one is to stop digging. Now more than ever, it’s important to step back and get your bearings. Many investors have made the classic mistake of confusing good investment returns in the last few years with a good process. As the saying goes, “Don’t confuse brains with a bull market.”
It’s time to have a more sober (and adult) approach to investing. Here is a compendium of my recent investment-focused blog posts. Enjoy.
“Wrestling the ‘Inflation Dragon’” (June 8, 2022)
Thinking in real (not nominal) terms, the inflation-resistance of a high savings rate, and what worked (and didn’t) in the inflationary 1970s.
“When Smart People Do Dumb Things” (May 25, 2022)
Investing lessons from Bill Hwang and the Archegos blow-up: trying to get rich quick in investing, your capacity vs your need to take investment risk, beware investment genius married to dodgy personal ethics.
“Faith or Fear?” (March 24, 2022)
The wisdom of long-term investment optimism married with shorter-term realism. Fear of the future is a recipe for subpar long-term returns (and unhappiness).
“Defining the ‘Why’ and Crypto” (February 11, 2022)
An email to a client arguing against buying crypto.
“Day Trading: Diving Into Shark-Infested Waters With a Bloody Nose” (May 28, 2020)
The long-awaited return of the day trader, in hibernation since the late 1990s. A prediction that outcome today will distinctly not be different. Just don’t.
“In Markets Like These: 1. Breath, 2: Return to the Fundamentals” (March 13, 2020)
In the midst of the Covid meltdown, a review of Ben Graham’s “The Intelligent Investor.”
“To Invest Well, It Helps to Have a Map and a Copilot” February 11, 2020
A friend who “went 100% to cash,” and why it helps in investing to have a map and a partner.
Dolan Partners works with mid-career professionals in the technology, real estate and executive search fields with at least $750,000 in investment assets.
Learn more here.