The investment school of hard knocks

There has been a lot of talk about millennials over the past number of years. And, clearly, the age cohort tends to get characterized by a certain type of stereotype: millennials are spoiled, they don’t know what life is really like, previous generations have had it tougher, etc. However, when it comes to investing, the stereotype, even if exaggerated, might serve as a teaching moment.

The need for life lessons

Specifically, according to David Lafferty, senior vice president of Natixis Investment Mangers, and as reported by CNBC, the experience millennials mostly have of investing involves the last number of years, and this period has essentially been a bull market. As a result, Lafferty believes that such investors have never experienced the inevitable bear markets that happen over time and, consequently, don’t get to experience first-hand what risk is really like.

Think about it for a moment. It’s one thing to say all the right things when it comes to investing: that you have to think about the long-term, and ups and downs will always happen. But, if you’ve never really experienced a serious downturn in the markets, does the lesson really stick?

The human touch

And, according to the same article, what’s adding to the potential problem are automated investing services, or so-called robo-advisors, that make automatic decisions for investors, including millennials. While such services certainly make investing easier, in some ways they miss the point of investing entirely.

In order to become a good investor, one actually has to learn how to invest, instead allowing others, or other things, to do it for you. That’s not to say that people shouldn’t hire investment firms, or deploy robo-advisors under the right circumstances. But even an automated solution needs human wisdom behind it. So, the use of any help in investing should also come with personal observations and judgement.

That’s why living through investment downturns, on top of any real-world investing experience you can get, can provide some real-life learning to develop the long-term outlook needed to meet your financial objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


There’s no magic formula for investing

Some people might think that there is a formula out there on how to invest successfully. And, clearly, there is no shortage of people who claim to have one. On the other hand, there is also a list of people who have used their own investment formulas successfully.

However, the fact of the matter is that there is no one way to invest successfully. If there was, someone would sell it, wouldn’t they. The reality is that successful investing involves many different factors, including knowledge, experience, judgement, information, networking and many other variables. So, it’s not necessarily a matter of figuring out one way of how to assess all these variables, but to learn as you go along, including learning from others.

A broader view of the markets

For example, if there is perhaps one most salient point to remember when it comes to investing, it’s to focus on the long-term. As any decent investor should know by now, markets go up and down, but the value of objective-reaching portfolios usually goes up. And when we talk about long-term, sometimes we’re talking about decades. So, reading market websites on a daily basis is not the sole road to investing success. A much broader view of the markets is needed.

Another piece of wisdom to keep in mind is to stay disciplined — on a number of fronts. Sometimes investors sell or buy simply for the sake of doing something when doing nothing would have been better. Sometimes investors make decisions on whether they like a company or its owner, or not, and that’s not necessarily the best way to invest, either. This probably isn’t the first time you’ve heard this, but investing shouldn’t be an overly-emotional endeavour. It should be done with reason, calculation and patience — always.

Learning instead of reacting

These are just a few insights into how to invest successfully, but the point is that they’re just that: insights. Some investors are more aggressive, some are more patient. But they all tend to exhibit some of the traits listed above because they learn about the nature of the markets instead of reacting to them.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


Let’s focus on long-term investing

There has been no shortage recently of commentary on these pages about avoiding the pitfalls of short-term stock-market watching. It’s distracting, short-sighted and susceptible to panic and poor investment decision making. That’s not what investing should be about.

However, instead of simply highlighting the pitfalls of short-term market watching, any observant investment stakeholder also needs to point out what long-term investing should really be about. That’s what I want to do presently.

Avoid distractions and fluctuations

Specifically, long-term investing should be about looking at the long-term. As trite as this might sound, it’s important to keep in mind. That’s because long-term investing really means that you should pay minimal attention to the daily stock-market reports. If you know what you’re doing, you know that a bad labour report doesn’t mean your investment portfolio is in jeopardy.

For example, long-term investing essentially means that you’re literally participating in good investments, whether it’s a company, debt, equity — you name it. If the underlying investment is sound, short-term fluctuations, or other distracting factors, really won’t matter, will they.

Stick to the plan

Indeed, there are various strategies long-term investors can engage in to protect themselves from the volatility of the markets. One, of course, is diversification. Most people know that. But what most people might also not know is that there are various types of diversification. It’s not just about investing in different types of investments, but region is a form of diversification, too, as are other factors.

In addition, every long-term investor should have some sort of game plan, so to speak, that in part anticipates short-term market fluctuations. If you look at just about any long-term chart of investment-market growth, they all go up. That’s in part because good investors stick to their original investment objectives and wait for the returns to come in — over the long term.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


Beating a dead horse

We’ve all heard of the expression: beating a dead horse, haven’t we? It means to keep at something despite the unlikelihood of having any meaningful effect. The expression comes from 19th century England when a politician reportedly used the phrase — more specifically, he would have said flogging a dead horse — to express frustration at convincing people on issues of importance.

Well, at the risk of beating a dead horse, I want to discuss, yet again, the movement of the stock markets and how taking a step back is important when considering long-term investment decisions.

Not all is doom and gloom

When I last discussed this issue over a week ago, a summary was given of all the bad news surrounding the markets, which then carries over into other areas of the economy  — manufacturing, GDP growth, etc., — to paint a glum picture of the future.

And there was one glimmer of hope that suggested the overall outlook might not be that bad? What was it? The prospect of a continuing strong jobs market. And what happened after I wrote that brief analysis? An extremely strong U.S. jobs report came out and, you guessed it, stocks rebounded considerably. Here’s a screenshot of the headlines at the end of that day:

stock market fluctuations

And now here’s a stock chart of the Dow Jones Industrial average for the last month:

dow jones industrial average

Again, it’s the long-term that matters

As you can see, January 4th was the date of the upbeat jobs report released by the U.S. Labor Department, which was the exact day of that huge spike in stocks that you see; and the level of the stock index has kept getting higher, reaching levels seen prior to a very rough end of December.

So, again, what does all of this mean? The simple answer is nothing. Long-term investors should just ignore short-term stock-market fluctuations. However, given how much attention is given to the markets, it’s important to put them in perspective, even if it risks beating a horse to death over and over again.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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