A couple of days ago, a poster on a financial site I monitor started a discussion titled ‘Is this selloff creating opportunities for you?”
I was flabbergasted and embarrassed, to put it mildly, that I’d apparently missed some market event that seriously impacted my worth and, even worse, maybe missed an opportunity to increase my worth by some well-timed investing.
A market selloff, after all, sounds serious and indeed can be serious. So, not content to simply shrug off my missed opportunity, I checked my memory against the facts.
What Constitutes A Market Sell Off These Days?
On the day this investor wrote about the ‘selloff,’ the S&P 500 closed at 1412. At that point, that market index sported a 13.7% gain from exactly twelve months prior, not counting about 2% in dividends. From the beginning of 2012, that index had gained 12.2%, again not counting any gains from dividends for the nearly ten months. And, from the half-year mark of 2012 (less than four months), the market had gained almost 4%.
Most of us would be ecstatic if we could replicate those gains to our portfolios steadily over pretty much any time frame. So, where’s the big selloff?
That investor is apparently focused on some recent short-term price action. It is so that just seven trading days earlier, the S&P index was at 1460 and so he apparently thought a 3% drop to 1412 constituted a ‘selloff.’ But it is also so that the market had a couple of exuberant weeks just prior to hitting that high-water mark, so making any long-term investing decisions on the up and then down of the market over a couple of weeks that could be said to be just moving sideways is iffy at best.
Who Benefits From A Sell Off
For those of us who are still in the accumulation stage of investing and make periodic contributions and investments, these ups and downs take care of themselves. Sometimes you’re investing when the market seems to be headed up and your previous investments are looking pretty good, and sometimes you’re investing when the market is down and you’re able to get more shares for your invested dollars. Over the long haul, with sensible low-cost funds and reasonable diversification, you’ll probably do just fine. A market correction, a selloff, works to your advantage.
For those of us who are at a different stage of investing and have some dry powder, a real selloff is something many of us look forward to. The last week or so, with a 3% drop from a recent high, is not a selloff. As for me, I’m keeping my dry powder and waiting for a real selloff. A real selloff works to the advantage of those of us who wait for it and implement appropriate buying.
Worth The Wait For Real Buying Opportunities
And that selloff will come. I don’t know what event or what combination of events will cause market sentiment to be such that there will be many more shares looking to be sold than buyers willing to pay recent prices for those shares, but that circumstance will happen. I just don’t know when.
It might be that things heat up in Europe again and those Euros that are relatively better off will decide that they’ve had it with Greece and Spain and the like. It might be that our elected representatives decide not to decide how to handle the fiscal abyss and the general perception will be that our economy is going to tip into recession early next year. Perhaps the Israelis will strike Iran and Iran will do something drastic. Possibly Apple will have to recall 50 million iPhones and the market spooks. Perhaps the investing public will realize that Facebook is worth but half of what it IPO’d at. (Oops, that already happened, didn’t it?) Maybe some or all of those things will happen around the same time.
For those opportunistic investors with some dry powder, whether you invest primarily for income or depend more upon share appreciation, a real selloff is a real opportunity. We’re not experiencing a real selloff yet. But, hang in there. Our time will come. Then we will have our opportunities.
In a recent post, I wrote about the Steve Jobs biography and Jobs’ emphasis on focusing his thoughts and efforts on the few most important aspects of anything he involved himself in. He believed that the very best results were obtained by having his people and his organization never focus on more than the two or three most important and influential aspects of their mission.
The Hard Work Of Investing In Your Nest Egg
I drew an analogy to our own investing and suggested that there is really no substitute for the hard work of research and a focus on the fundamentals of a potential investment when we’re deciding where to invest our nest egg.
After I finished the Jobs book, I dug another biography out of the trunk of my car where it had been chalking up miles for about six months. I decided it was time I got my money’s worth so I gave a read to The Snowball: Warren Buffett and the Business of Life by Alice Schroeder.
Buffet, Jobs and Bill: Focus
I was intrigued by the account of the very first meeting between Buffett and Bill Gates, another successful character. At a dinner that first day they met, Gates’ dad asked: ‘What factor do you think was the most important in getting you to where you've gotten in life?'
Buffet said: "Focus."
Gates immediately answered: "Focus."
Steve Jobs. Bill Gates. Warren Buffett.
Apple. Microsoft. Berkshire Hathaway.
Focus. Focus. Focus.
I’d guess there’s a small lesson in there from these three most successful entrepreneurs and businessmen. Maybe that’s a tip for our own successful investing and maybe also for our personal lives.
The Many Roads To Success
There are some other interesting tidbits about Buffett, the man, in the book.
Buffett, often regarded as one of the very best investors, screwed up so many times and made so many investments that went in the ditch that it’s almost laughable. That makes me feel better about some of the times things haven’t worked out so well for me.
As a young man, Buffett had a pretty good idea about what he wanted to do with his life and, full of great visions of himself, he applied to Harvard Business School. He was not accepted. That momentary disappointment didn’t hold him back a bit. Since we’re all going to face some disappointment, a reminder that there are many roads to success is pleasant to consider.
5 Investing Insights from Steve Jobs Featured
I seldom recommend a book to anyone. Now that I think about it, I hardly ever recommend a food or a wine or a movie, either. What people consume is very personal and it always seems somehow condescending to tell someone they should read something. So I’m not recommending you necessarily need to read the Steve Jobs biography by Walter Isaacson , but I did, and it’s a fascinating study of a man and a business.
I gleaned a few insights about the man in that reading and I think some might apply to our own investing.
Don't Take It Personally
- Steve Jobs often described himself as an a**hole. Those who knew him largely agreed with that self-assessment. They also, to a person almost, said that he inspired them and drove them to do things they thought were impossible.
The stock market doesn’t recognize personality. Our returns are not a reflection of what a nice guy we are. Or are not. Rewards in investing are independent of our own personality traits and, over the long term, are largely driven by behavioral traits, such as the willingness to put in the hard work to understand our investments.
Don't Accept "B or C Players" In Life or Investing
- Steve Jobs only wanted A players on his team and was ruthless in getting rid of B players. He knew that A players only want to play and work with other A players and were put off their game by having to deal with B players. He believed that if an organization tolerated B players, then soon there would be C players to contend with. And neither B nor C players were acceptable.
With respect to investing, A players might be considered the very best companies or the best-performing funds, over a long period of time. There’s an argument to be made for diversification but I’m not the best one to make that argument. Almost every time I’ve invested in a B or a C situation, for the sake of diversification, I have not done as well as I would if I had simply not added those B’s and C’s to my portfolio.
Stay Focused on Long Term Goals
- Jobs believed in FOCUS and he attributed that belief partly to his early Zen training. At a retreat or big meeting, he’d ask the group for their best ideas on direction or product. After hours and hours, they’d wind up with only 10 items on his whiteboard (he always owned the whiteboard at meetings). Then, he’d knock off 5 of the ten from the list. Then, after further discussion, he’d knock off some more so that there were never more than 2 or 3 things for the organization to focus on.
That emphasis on FOCUS is extremely important in screening for the situations you want to put your hard-earned money behind. It’s hard work to dive deep on potential investments and sort the truly promising from those that might look good at a superficial level but have some potential drawbacks. There is no substitute for hard work and focus when deciding where to invest your nest egg.
Be Wary of The Herd
- Jobs did not believe in either asking customers what they wanted or how he was doing. No ‘focus groups,’ no polling, no customer surveys. He instead focused on delivering the best offerings according to his own definition and driving his organization to consistently innovate toward a common vision. He knew his customers didn’t really know what they wanted until he created it. He sometimes quoted Henry Ford who said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’”
Let’s face it. The debt and equity markets are a daily poll to a certain extent. Increases and decreases in value are driven by demand or lack thereof. And demand is often a ‘follow the herd’ phenomenon. Be wary of the instinct to follow the herd in your personal investing. Always remember that when things seem rosy and prices are rising, that for every share that’s bought by those following the herd with the promise of even higher prices, there’s a smart guy who’s selling his shares against that herd. It’s best to try to filter out the daily poll of the markets and look to our own assessment of our investments.
Acknowledge and Learn From Investing Mistakes
- Jobs was brutally honest. He said, “It’s my job to be honest . . . We are brutally honest with each other, and anyone can tell me they think I am full of **** and I can tell them the same . . . . That’s the ante for being in the room.”
With our own investments, there’s no one in the room with us. We only have to be brutally honest with ourselves. We might all have the tendency to only mention our winners on the golf course or around the water cooler, but we probably should be brutally honest with ourselves and pay lots of attention to the ones that didn’t work out so well. Those are the past learning experiences that will help us most in our future investing.