Tag Archives: investment discipline

Stick with investment plan amid brutal market correction

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For  25 years, I commuted into San Francisco to work. During the Internet bubble at the end of the end of the 1990s, the traffic grew to epic proportions.

A normally  30-minute drive morphed into an hour, sometimes an hour and a half. Too many cars, too few lanes. The traffic made me crazy, and I drove like it. I was the driver who merged first into one lane and then another to anticipate the flow. Inevitably, once I switched lanes, the traffic slowed and the cars in my previous lane whooshed past. If I shifted back over, the traffic in front of me once again suddenly slowed and I watched another stream of cars whiz by on either side. By trying to anticipate future traffic flows, I inevitably came up short and increasingly frustrated.

On the heels of the worst short-term opening for stocks (ever!), it is important to have a plan, know your risk tolerance and to implement your discipline with conviction. One day I observed that changing lanes didn’t pay. The best strategy was to pick a particular lane and stick to it. I learned not to zig. Or zag. I resisted the lure of chasing the apparent traffic flow, because from my vantage — in the thick of the traffic jam — I lacked perspective so I stuck with my driving discipline and didn’t veer from the plan.

According to Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year…

Read more here:  The Arizona Republic

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How to Become a Successful Investor–Part Four: It’s A Matter of Discipline

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After thirty years as a professional investor I have heard just about every cocktail party stock tip or market timing success.  With their hand wrapped around a highball, everyone’s a winner.

Were that it were true.  But it’s not.

Important for us to remember is that no investor or investment discipline can be right all the time.  If we were to listen to every hot tip advocated by friends or acquaintances, we would likely chase our tales right into bankruptcy. So what is an investor to do?

First, consider what kind of investor you are.  By that I mean:  what kind of investing suits your temperament?  Are you, for example, an early adapter?  Did you own the first iPhone or iPad or are you first in line for the latest new movie release?  If so, you are likely to be comfortable buying growth stocks.  Growth stock investors are less focused on the price of the stock than they are the price momentum of the stock.

Value stock investors, however, are more reticent and conservative by nature.  Though not necessarily risk averse, value investors wait for products or companies to become established before they jump in.  If you still carry a flip phone you are likely a value investor.  Or if you drive your car, as I did, to the point of deafening rattles and yards of electrical tape holding the side-view mirror in place, you are someone who is less concerned with the latest trend and more concerned with obtaining value.

Both growth and value stock investing can be successful.  The fabled Peter Lynch of Fidelity’s Magellan Fund was the epitome of a successful growth stock investor.  Warren Buffett is the quintessential value investor.  Both have made billions of dollars for their respective clients.  And both have implemented strategies that are compatible with their personalities.  As should you.

Once you understand your investing bias (growth or value), do not stray from the kinds of stocks you are comfortable holding.  It is unwise for us to act against our nature in general and particularly so as investors.   Discipline and consistency pay off in the stock market.  Consider my Intelligent Investing Rule #1:  Having any investment discipline is better than having no discipline at all; once your investment strategy is established, never deviate.

But if you do fall off the wagon, don’t give up, get right back on and stay the course.

Next post we will explore two specific valuation disciplines you can employ in your own portfolio.