Be Still and be Extraordinary

By Allan Jaster, Principal, The Archer Consulting Group

IMG_0642One of my favorite sayings is “if you want to be extraordinary – you have to do extraordinary things.”    I’ve no idea where or when I heard it but it’s now a saying that gets me up early and keeps me purposefully ambitious day in and day out.   Along those lines, for a person to be a successful investor they must do extraordinary things… and they have to do them day-in and day-out for decades.

Did you know that our brains process negative investment returns in the same place that we process mortal danger?   Mortal danger!  Talk about the odds being stacked against us!  We are all genetically hard-wired to make poor, emotion-based financial decisions and fail as investors.  Now, we may refuse to admit that we would ever “let something as ridiculous as emotion affect our cool rational financial thought process.”  Truth is, unless you are made of metal, wires and computer chips – instead of flesh and blood – you’re affected.   The same powerful voice that keeps you alive by telling you to “run!” from a burning building and rattlesnakes-… is the same voice leads you right off the path of success investing.

Extraordinary investors choose a low-cost passive or index portfolio with an appropriate mix of mutual funds… and they sit still for years.  Well let’s take a look at those that are NOT extraordinary… which is most of the investing world.  Turns out most investors don’t fare well against a confusing volatile market.  Many of you have heard of the company Dalbar, Inc.  They are a Boston based company that benchmarks and measures things.  One of the things they measure is investor performance.    They documented investor performance for 20 years from 1989 to 2008 and matched investor performance against what the stock market did.  Intuitively you’d think – if the market does good… investors do good… and if the market does badly then investors do bad.    Turns out investors do terrible regardless of what the market does!

Dalbar_Stuies

The 6% gap between what the Market did and what the investor’s did was the result of investors maneuvering to take advantage of the perceived opportunities and to avoid what they thought were risks.  What was actually going on was investors were being led astray by the following:  their instincts, their gut or perceived experience, and my favorite – “a financial “expert” they follow on TV or some media outlet.

I can already hear the chorus of nay-saying – “Oh – but I’m not average.”  This position is fortified by the fact that the investor may have an above average job… and an above average I.Q.   I genuinely applaud that success in life.  Unfortunately those things have absolutely nothing to do with successful investment decision making.   In fact, we’re making a strong case that they work directly against the investor.     This leads me right to another interesting point:  ironically, many investors (and most advisors) who pick and choose securities and time the Market actually look down upon those that don’t.  They feel that those who favor a low-cost, diversification and buy-and-hold strategy are simply not clever enough to research and recognize what’s a buy or what’s a sell.   Trapped by their own egos, they will always be able to defend their position by pointing out a time when they “called it right” and somehow dismiss those times when they picked wrong.   The inspiration for this article actually happened to me this morning in the gym.  I started chatting with a guy about my age and he asked what I did for work?  “Oh wow!  You’re a rock star/financial advisor?  That’s really cool man!”   We kept chatting and once he discovered the firms boring academic based investment philosophy/strategies… and the fact that I’m nothing close to a hedge fund manager– instantly he revoked my celebrity status.

So in conclusion you have a choice to make.  You can be average… or you can be extraordinary.  To be extraordinary you have to be okay with not being the cool kid at the party.  There’s nothing cool about passive/index investing and Asset Allocation… except for you know… a positive investment experience.  You must also recognize the fact that your wealth walks hand in hand with your ability to not react to fear… or the news… or a guru… or a magazine… or what you think tomorrow might bring.   Extraordinary means you must stand right next to the volatile unpredictable financial rattlesnake… and not budge an inch.   The louder the snake rattles the more resolve you have to muster in order to stay put.  If you can endure against your own voices day-in and day-out… year-in and year-out then yours will be a story of prosperity.    If you cannot – you’ll be part of the average.

Allan Jaster

The Archer Consulting Group, LLC.