tolerating volatility

Value Will Out: Living with the Streaky In-Between
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The ever-changing mosaic of the market holds my attention like few things do. It seems that a million factors bear on daily outcomes, mediated by human emotions such as fear and greed.

As fundamental investors, we believe that value ultimately comes out. Fads and fears may drive prices to irrational levels, but sooner or later the bottom line, the intrinsic worth makes itself known. This is why we are sometimes content to invest or hold onto unpopular companies: we’re waiting patiently.

Recently the broad stock market averages had their worst day in many months—followed the next day by the best day in many months. One day the global economy is supposedly going off a cliff; the next, all is well in the world. During such turmoil, we are happy to do our research, make decisions, and hang on.

The crosscurrents have been strong. When some of our larger holdings gain or lose 5% in a day, it has an impact on your account balances. But we pick our spots, thinking about the long term, and judge our results over the longest possible time horizon.

Streakiness in the short run, we can tolerate. It may just be the price of getting to the long-term results we desire.

For you, that means we are interested in your cumulative results: how much have you put in, and how much do you have now? This is generally a more useful, and gratifying, way to look at your portfolios. The day-to-day action can appear random, by comparison. (It goes up and down, this we know.)

In the meantime, we read and study, assessing our holdings and looking for new possibilities. Having the best clients in the world helps: we spend no time apologizing or explaining short-term volatility, for we know it will always be with us.

Clients, if you would like to talk about this or anything else, please email us or call.

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Play the audio version of this post below:

Value Will Out: Living With the Streaky In-Between – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

MAPPING THE PAIN
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We talk plenty around here about change, pain, and loss. They are a given in many activities, including owning a business, living, and having a human body.

Navigating pain, however, is easier when we’ve got some perspective about where we are. If we can understand more about the terrain, it’s clearer when we should be concerned versus when we should try to carry on.

Is this pain just “part of it”?

When a toddler is achy and crying during a growth spurt, parents have a chance to reflect that the screaming is just—to an extent—part of it. The kid doesn’t grow without some stretching and aching.

Is it “to-be-expected” pain?

Bending down to lace up new running shoes isn’t too bad. That first mile? Ouch. Some people feel the burn in their muscles and immediately interpret the signal as, “I guess I’m just not a runner.”

This is not a useful interpretation, given that the exercise is new terrain. Take some time to navigate it, and recalibrate: which pain and how much pain is to be expected for a new runner?

Is it acceptable?

This question is a little trickier. Only you know what you can stand or what you can choose to stand. We suspect you can handle quite a lot, but “tolerable” is relative.

Mean-spirited or toxic pain inflicted on our fellow humans? Not acceptable.

A growing pain? The pain of a shock? Maybe we’ve got a chance to understand it better—and respond rather than react.

Clients, we don’t know it all, but we’re happy to provide perspective where we can and try to understand where you are. Call or write.

Pain and Gain

© Can Stock Photo / Anke

Great thinker Morgan Housel talks about the scene in Lawrence of Arabia in which one man snuffs a match out with his fingers and doesn’t flinch. Another tries it, yells in pain, and asks what the trick is. “The trick is not minding that it hurts.”

Housel concludes “accepting a little pain has huge benefits. But it will always be rare, because it hurts.”

The implication for our business with you is clear. Housel concisely states what we’ve been working to convey for years: “The upside when you simply accept and endure the pain from market declines is that future declines don’t hurt as bad. You realize it’s just part of the game.”

That you have learned this lesson, and tend to live by it even when it is uncomfortable is why we say you are the best clients in the world. We feel fortunate, because it is rare. Somehow we found or attracted people with effective investing instincts, or helped to instill those.

The key to making this work in the real world is avoiding the need to sell at bad times. Cash reserves and adequate cash flow are the things that let us live with short term fluctuations with our long term money.

When we are all on the same page, we spend less time worrying about, and explaining, day to day or week to week market action. Almost all financial market commentary may be summarized by saying “it goes up and down.”

This gives us time to hunt for bargains, think about trends on the horizon, and work on your plans and planning. All of these are more worthwhile uses of our time than attempting to explain why the market went up or down yesterday, or predict what it might do tomorrow.

Clients, if you would like to talk about this or anything else, please email us or call.