Wise Money: Disciplined ActionSubmitted by RetireWiseCFP on April 10th, 2019
Three months ago in my last letter I wrote about ‘anti-fragility’: that the downturn we experienced in the stock market at the end of 2018, while upsetting, was NOT the end of the world. It was an occasion to review our portfolio and get better.
Where are we now?
Well, my friends, this is exactly what happened — we got better! In general, the high quality companies that we owned really responded well to start off us on a solid footing in 2019. Make no mistake, I am not expecting straight up from here, and I am neither engaged nor interested in a victory dance: because there are more downturns to come and more ill winds to blow. But for long-term investors — those who truly think long term, who do not overreact to the vicissitudes of the markets, and most important do not react to scary headlines news — downturns, although often upsetting, also generally present the best window of opportunity to improve the quality of our overall portfolio. Your humble financial advisor was doing just that to start 2019.
Where do we go from here?
I am staying very, very disciplined! I am staying with the secular winners — meaning companies that are winning BIG in the marketplace, especially in winner-take-all type industries like Big Tech. When we are fortunate enough to own one of these companies at a decent price, we want to stay with them forever; and after forever we go another round of forever again. The timeframe for secular success can run for 5 to 30 years, not 5 to 30 quarters. So when we are lucky enough to find a secular winner, we must be disciplined and not interrupt the flow. I’ve learned that when we think we are smart and we sell winners to “diversify” and buy something else, it is often wrong. It’s not easy to find those winners. We need wisdom and disciplined (non) action — this is what truly separates great investors like Warren Buffett. My intentional, deliberate non-action to keep winners is truly the difference between me and many other professionals in our business and the do-it-yourself folks; and that has allowed me to deliver for many, many clients. I stay with our winners! Easy to say but very, very hard to do, especially when the going gets tough.
On fixed income and alternatives:
Everything I wrote three months ago about the chairman of the Federal Reserve Jay Powell has come to pass exactly as I wrote. I said that I believed he overplayed his hand and was talking too tough — like a trigger-happy sheriff looking to shoot down every bad guy (inflation) in town except for one thing — I don’t see inflation. To his credit, Chairman Powell has wisely reversed course and deftly acknowledged that he was wrong to be unduly pugnacious and that he was unnecessarily inducing heartburn in the markets and the economy in general.
On Alternatives: The Bitcoin mania is still in a coma. An independent study came out about a week ago stating that about 95% of bitcoin trades during the mania were fake. Bitcoin promoters were entering fake buys and sells to lubricate the system and give the appearance of volume and activity. This again is another lesson in the wisdom of Get Rich Slowly and other simple yet unassailable truisms we all learned growing up, i.e., if it’s too good to be true ….
What should we look out for?
Same as the last time: The outcome of the negotiations between the US and China is really the next BIG shoe to drop, and that, my friends, is a BIG one. There is no need to be speculative about it or take action in anticipation. Whatever happens, I will make only one promise: I will deal with it. We will buy more of the companies that will benefit from whatever outcome or decision is reached. America is a resilient and dynamic economy; I am confident America will make the necessary adjustments and China will not overcome America.
Thank you again for all your support as I dealt with cancer in 2018. I am indeed getting stronger and stronger monthly. I will continue to seek the path of wisdom daily in my decisions and abide by disciplined action to keep secular winners. I am not trying to be a smart investor; no, I start out thinking there is yet more for me learn today than I knew yesterday. I hope I never get to the day when I think I’ve achieved wisdom.
Femi T. Shote, MSF, ChFC, CFP®