The Power Of Simply Staying Put
Today marks the sixth anniversary since the launch of LCV Advisors. Thank you everyone including clients, family, friends and newsletter readers who have supported me and the firm along the way. It’s been a rewarding and fun journey thus far and I am looking forward to many more fruitful years of planning and investing.
There have been two very powerful investment truisms that have been reinforced since LCV Advisors’ launch. These are the power of staying put and keeping it simple and they continue to be major drivers for successful investment outcomes. These truisms have also been the key pillars for investment success during my four-decade personal and professional investing career.
Longevity Over Intensity
You’ve probably heard that starting early as possible with investing is one of the best, if not the best decisions an investor can make. Yes, it can be boring but if done properly, it can yield very exciting results longer-term. As Charlie Munger said, “The first rule of compounding is to never interrupt it unnecessarily.” Early on, nothing exciting happens, but after years of persistence and patience, great and fruitful things can happen.
One way to illustrate this is with the story of the magic of the compounding penny. If I gave you a penny today and it doubled in value every day for 30 days, you would end up with over $5.3 million. Obviously, no real investments double daily but the key point is the power of compound interest. It takes a while for it to get to the exciting and enrichment phase. Over 98% of Warren Buffet’s net worth today ($120 billion) is tied to him being invested after he reached the threshold age of 60 years old. Compounding is just the return to the power of time. It does all the heavy lifting with your portfolio. The keys are endurance and longevity.
K.I.S.S. Your Portfolio
Since LCV Advisor’s launch, there have been many new, high intensity, complex investment offerings including meme stocks to digital currencies. The shiny allure of these new investment schemes can overwhelm the time-tested, quiet and simple compounding truism. Adding a dash of these more speculative, complex investments can make sense for some risk tolerant investors. However, adding too many of these investments can morph a portfolio into a complex and unwieldy hodgepodge. This "di-worse-ifying" vs diversifying effect can cause added costs and stress as you become confused over how all the investments fit and work together.
The truism of simple carries over to investment returns. Aiming and attaining good long term returns versus trying to always maximize shorter term returns is a winning formula with mutual fund investing. There are thousands of higher cost “active” funds in which the portfolio managers hand-pick investments to try to beat the simple averages. However, evidence has shown time and time again that just capturing the average benchmark index return trounces active fund performance across all fund categories
Earning Average Returns Over Time: The Simple Beats The Pros
Buying Right And Sitting Tight
Capitulating and selling after a bad stretch (pandemic, inflation, war, elections) in the markets can feel like the proper thing to do. However, it’s usually the wrong decision given a proper, sustainable plan. Simple, quiet compounding unabated over time yields the biggest rewards.
What you’ve done is not as important as how long you’ve done it for.
Thank you for your support.
David Hone, CFA