As I sit here writing this, the S&P 500 has fallen some 20% from it's high, the Fed has raised interest rates by a whopping 0.75% and everyone, I mean, EVERYONE is worried about inflation. It certainly feels like our economic tide is ebbing, and as Warren Buffet said, it is only when the tide goes out that you see who is swimming naked. The past ten years have been very forgiving to risk-taking investors. Interest rates had their most benign decade in seventy five years, and post-COVID, fell further still. Despite this, inflation remained tame, held back by increasing levels of globalization and tech-driven efficiencies. To continue the metaphor, high tides and calm seas inspired a lot of skinny dipping.
What did such risk-taking look like? Concentrated portfolios in new technology companies, Robinhood accounts with complicated options strategies, modest suburban homes attracting unsolicited bids, Bitcoin investments based on technical analysis and oh, NFTs of bored apes. These are only the stories we hear. It isn't really human nature to widely share stories of one's losses. While the occasional investment horror story will make it to the press, most tales of portfolio carnage remain hidden forever. If taking on excessive and concentrated risk is swimming naked, what does it take to be properly attired? That's easy - thanks to decades of academic studies and insights from some very wise investors:
A low-cost, widely diversified portfolio that is simply left alone. It's what I'd call...Ichiro Investing
As someone who grew up in India, and with cricket, I was introduced to baseball around 2000. While I still remain a reluctant fan, my first few years with the sport were dominated by the din of home-run records being demolished by the now-infamous Barry Bonds and Mark McGwire. Everyone was consumed by these two bulked-up titans swinging for the fences. But it was also a good time to root for a plucky underdog called Ichiro Suzuki. I will let Bruce Jenkins of the SF Chronicle make the case...
"There's nobody like Ichiro in either league—now or ever. He exists strictly within his own world, playing a game 100 percent unfamiliar to everyone else. The game has known plenty of 'slap' hitters, but none who sacrifice so much natural ability for the sake of the art. And he'll go deep occasionally in games, looking very much like someone who could do it again, often ... [but] the man lives for hits, little tiny ones, and the glory of standing atop the world in that category. Every spring, scouts or media types write him off, swearing that opposing pitchers have found the key, and they are embarrassingly wrong."
Twenty eight seasons of little tiny hits will earn him a spot in the hall of fame just fine, thank you. Over a career that spanned 28 years and two continents, Ichiro finished with more than 3000 hits, 500 stolen bases and ten Golden Glove/All-Star years. His style sacrificed high-risk power hits in favor of bat control to hit seemingly anywhere on the field that was safe. He combined his offence with staunch defense honed by hours of practice.
He played baseball like Buffett and Bogle so insightfully recommend that we invest. There will be few soaring home runs, no headlines and rarely will you be handed a walk just for showing up. But a lifetime of high-percentage hits, tight defense, and discipline will add up to to more wealth than you were thought capable of.
To invest like Ichiro played baseball is to keep your fundamentals sound:
Increase your savings rate
Invest in low-cost index ETFs
Take full advantage of our tax-code
In turbulent markets, stick with the plan
If you don't have a plan, give me a call, this is what I do
As painful as the past six months of market turmoil have been, it isn't too late to set things right. The best course of action right now is to review your investments, assess the overall level of risk and concentration against your own investing horizon and risk tolerance. Then make the adjustments you need to. Finally, avoid "Loss Aversion" - a psychological bias that prevents us from booking losses and correcting our positions.
This material is intended to be of general interest, not personal financial advice or a recommendation to buy, sell or hold any security or adopt a particular investment strategy. Your circumstances and attitudes toward risk matter, and only an advisor working with you can give you specific advice. All investments carry the risk of loss, including loss of principal. Stock and bond prices can be volatile. Past performance is not an indicator or guarantee of future results. Diversification does not guarantee profit or protect against risk of loss. This material may not be reproduced, distributed or published without prior written permission from Sanjay Pamurthy/Artham Advisors LLC. Data from third party sources quoted here has not independently verified, validated or audited. Although information has been obtained from sources that Artham believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. Artham accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Comments