- Investing is never about instant gratification. Instead, investing is like a boxing match. At the end of a long fight, there is always a winner, but that winner never walks away without bruises. Martin Financial Solutions intends to keep winning its bouts with financial markets, but there will be bruises along the way.
- The world is in a kind of long-term economic depression called a Kondratieff Winter, which changes the approach investors must take in order to profit. All pundit talk to the contrary is generated by people who can’t or won’t consider a realistic view of the long-term cycles that have existed in the global economy for the last 300+ years. Some years will be better than others, but the dominant present-day themes are structurally higher unemployment, greater numbers of defaults, and heightened volatility in asset prices. In the olden days, most of these types of depressions were deflationary, i.e. characterized by a decline in the total currency and credit supply. By contrast, the current depression is primarily inflationary, i.e. characterized by an increase in the total currency and credit supply. That distinction, while significant for investments, does not change the fact that most people will witness a decline in their standards of living. “It is the nature of the human species to reject what is true but unpleasant and to embrace what is obviously false but comforting.”–American satirist H.L. Mencken
- Informed investors profit tremendously during economic depressions. One should remember the ancient Chinese proverb that crisis equals opportunity. President Obama’s former chief of staff, Rahm Emanuel, viewed the 2008 crisis as an opportunity to expand governmental power; if he can view a crisis that way, then investors should have every right to view the present as an opportunity to profit. “There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures.”–Julius Caesar Act 4, scene 3, 218–224 by William Shakespeare
- Investing is best without heart; one must never fall in love with an investment because everything moves in cycles. Emotional investing is the most dangerous kind. Investing needs to be cold and calculated, a heartless allocation according to the present reality, no matter how dark or dire the outlook. No one ever realized a profit on an investment until they sold that investment. Investments are merely tools to make profit. All investments eventually hurt their owners if those owners hold on to them too long. One must be willing to part with gigantic winners. Solid investors will capitalize on asset price volatility.
- While the stock market rises, risk brews silently beneath the visibly placid surface. The market drops a lot faster than it rises. In just three trading days (January 20-22, 2010) the stock market took away three months’ worth of gains.
- At certain times, cash can be the best investment.
- No investment has zero risk. Even a money market account can “break the buck,” and lose value. The FDIC has inadequate funds to bail out all of the big banks, which means that bank accounts have some risk. While some government bonds may well extend their multi-decade rally, their prices have already become volatile, and will eventually enter a time of protracted decline. They can even cease to exist during a time of sovereign debt defaults like the one that approaches. “There’s no security on this earth, only opportunity.”–Douglas MacArthur, 1880-1964, American Army General in WW II
- Solid investors have four qualities, only the first of which involves intellect:
- analytical skills to compare the present day with analogs from the past
- the resilience to take a hard punch to the gut, given that mistakes are part of an investor’s life. Absolutely no one gets the short term calls correct even 70% of the time. The key is to have big winners AND small losers. In the current volatile environment, investors should be prepared for at least a 10% temporary pullback in their portfolio to occur every single year, and it will likely occur from one month to the next.
- the humility to accept the unknown. Good investors know a great deal, but a great investor is someone who understands just how much is unknown. All great investors throughout history have one quality in common, and it has nothing to do with what they did when they were correct. The common denominator is that they all reversed their incorrect decisions in relatively short order. It’s more important to be profitable than right. “An error doesn’t become a mistake until you refuse to correct it.”–John Fitzgerald Kennedy
- patience to remain true to one’s fundamentally correct convictions even when they temporarily look wrong. Even the best strategy can go against an investor for a while. One must occasionally be willing to hold on to unrealized losers that are fundamentally sound. “The stock market is a highly effective mechanism for the transfer of wealth from the impatient to the patient”–Warren Buffett
- The best investors always have been and always shall be contrarians. “Close the doors. I will tell you the secret of getting rich on Wall Street. You try to be greedy when others are fearful and you try to be fearful when others are greedy.”–Warren Buffett at age 21
