The Six Keys to Investing Success

Keys to Investing Success: Faith

There are certain truths about investing that are unchanging. It is for this exact reason that we don’t see the advice we really need in the news. If the news were the same every day, we would simply get bored and stop watching. Instead, most of the financial news we read is speculation and doomsday broadcasting, making all sorts of predictions about the future. 

One truth that is rarely discussed but is arguably the most important to investor success is this: what our funds do is not as important as what we do. Investor behaviour is one of the biggest determinants of success.  

So, we are going to do the opposite of what the media does and say the same thing over again. Remind ourselves and our people of the three values and three practices that we build our strategy on. 

Faith. If we look to the future and only see fear and disaster, it is infinitely more difficult to invest in. We don’t have a crystal ball, we can’t see the future and know for certain that it will be good. This is why investing our money does require an act of faith. However, it is not a completely blind venture. History shows us that human progress has only grown over time, and that when it has dipped or slowed, it has recovered and continued to new heights. The media tries to convince us that every new disaster is an exception to history, with the old saying “this time is different”. And one day it might be. But until that time, we choose to have faith that tomorrow will be better than today. 

Patience. In 1920, the average life expectancy was 60 years old. In 2020, the average life expectancy in Canada is 79.5 years for men and 83.9 years for women. We are living longer and as such have more time than ever. Especially when we are planning not only for our own lifetimes, but for our legacy and what we would like to leave behind for our loved ones. When it comes to creating wealth, there is no greater asset than time. In the short term, investment returns can be bumpy, but over the long term they have historically trodden steadily upward. We don’t need to concern ourselves with today’s numbers, or this month’s, or this year’s, because we are investing for the long term. Instead, we sit back and be patient, and allow the markets to do what they do best. 

Discipline. It’s no secret that creating wealth requires a great deal of self-control. It’s not easy to choose to put away money for the long term instead of spending it. Nor is it easy to continue to put money into something when its value is dropping (in the short term). It also takes discipline to have faith and be patient. In a sense, discipline is the foundation on which we build our wealth. Everything else we try to do means nothing if we don’t have the discipline to stick with them. 

Asset allocation. There are 3 basic asset classes: cash, fixed income, and equity. In simpler terms, easy to access money (savings accounts that earn interest for example), debt (borrowing money to a company or government to earn interest on it: bonds), and ownership (buying shares in a company to take part in their profits: equity). Picking the correct asset class is responsible for more of investor returns than selection or timing. And knowing what we are investing for determines what asset class we should be invested in. For long term savings, we believe ownership is the way to go. Think about a company like Amazon. Knowing the success they have, if we could go back to when they first started, would we have wanted to borrow them money, make a fixed percentage of interest, and have our returns end when the loan is repaid? Or rather invest and share in a percentage of all their profits with no cap on the returns or an end date? 

Diversification. This simply means no big bets. Not putting all our eggs in one basket. Rather than betting significant portions of our savings on single investments, we put smaller portions into a number of investments so that if one investment falls, we haven’t lost everything. This also means that we don’t make a killing when that singular investment skyrockets, but we believe trading that possibility for the more concrete promise of consistent returns across a diversified portfolio is a better bet. As Nick Murray says, “Diversification is the conscious decision never to be able to make a killing, in return for the priceless blessing of never getting killed.”

Rebalancing. Taking profits from the winners and investing them into what we expect to be future winners. Value fluctuates. Certain industries have hey days at certain times and then slow down in others. Some companies are established and are making big profits, whereas others are just getting started and their big profits are ahead of them. Rebalancing is simply the process of skimming off the top of the investments that are having a great run, and giving some to the investments that are getting ready to start climbing. This makes sure that we remain diversified and can take advantage of purchasing undervalued investments while they’re still cheap.

Though these disciplines and practices are separated into 6 points, they all overlap with each other. In the end, they’re more one big mindset than individual ideas. And this mindset is one that directs our behaviours and sets us up for success. Holding this mindset is not easy, especially in times of stress and uncertainty. This is why we choose to do the opposite of the news and say it over and over! The more we hear something, the easier it is to remember it and stick with it.