Saturday, May 28, 2005
Thus far on the stroll, I have offered you nothing but statistics attempting to define the beast we seek to ride in the investment arena, and indeed, to invest in the stock market is to ride an unseen beast. As I say this, the question that should pop into your mind, immediately, is: "Is the beast friend or foe?" Is it a beast of burden like an ox that will safely carry us to the other side, or is it a wild beast that we can only hope to ride successfully for a few moments, like a rodeo bull? If you have not come to grips with the notion that the stock market is a beast, you will do poorly in the long run at investing. Investing is not for fun, it is for profit and, ultimately, for survival. It is not like golf, where you can practice the various strokes in the relative comfort of a driving range and become proficient enough to enjoy a round on an actual course. It is more like boxing. You can shadow box all you want in front of a mirror, or against a punching bag, but when you step in the ring against another fighter, one thing becomes immediately clear: This is going to hurt. Win or lose the nature of this game is to endure the hits you are going to take. The hits in the investment game are psychological and financial, not physical like boxing, but the effects are the same. You must learn to navigate the investment arena suffering from a host of destructive blows to your pride, self confidence, and wallet -- maybe even to your way of life. If you insist on "just winging it" as do 80% of investors, you will be shaken silly by just the normal movements of the beast you seek to ride. And even though the beast can be ridden to great profit, it can never be tamed. It will always be wild. It will always be unpredictable in the short run, and it will hurt you at times, even if you know the nature of the beast. But if you know the game you are in, understand the nature of the beast, and accept it for what it is and what you must endure to ride it, the beast will take you to high places you can not imagine. I have read hundreds of books on investing. None of them adequetely prepares investors for the psychological ride they must make to become a sucessful. Intelligence, by itself, will not ensure good results, experience helps only a little, taking a college course in investing is virtually worthless, unless it is taught by a successful fulltime investor. The one thing everyone misses except the successful investor is the psychological and financial hurts that must be endured in the short run to obtain a profitable long-term result. At Donaldson Capital, when we talk to our clients we are just as apt to speak of our failures in the markets, as our successes. This may not sound like good marketing strategy, but we learned a long time ago that we can always find new clients. What we are interested in is helping our existing clients to know what the investment game is all about, understand that by its nature it will bring hurts that must be endured, and that by not letting the beast's good or bad temper scare us off that we will win. Someone once said that investing is a bloodsport, if so dividends assure us of our "cut."