The volatility we experienced in December challenged investors to understand their personal truth around risk and investment principles. As a wealth manager over multiple market cycles, I have found the following investor traits bring greater clarity to financial and investment decisions.
Patience! Invest for the Long Term.
When the fog of volatility begins to rock confidence, investors are challenged to maintain a long-term perspective and are tempted to give in to their fear and emotion. Selling into volatility is short term thinking and rarely works as an investment objective. One of the best long-term thinkers, Warren Buffet, stresses long term value investing because he understands the power of exponential growth.
“The single greatest edge an investor can have is a long term orientation.” Seth Klarman
When you follow a consistent strategy based on your investment goals, you are less likely to follow the market like a dart-throwing novice. Remember that investment strategy is measured with a calendar, not a stopwatch. Historically, the market goes up 70% of the time so use a long term barometer averaging 6% to measure success in your portfolio.
For every group of investors who are stockpiling funds in bonds or cash during market volatility or selling stocks during the chaos as tracked by Wall Street, there’s a wealthy American making a money move that might seem even more shocking – not doing anything.
Invest in Good Companies.
Just like in buying a new home, you look for “good bones” in value investing in high quality companies. Investing in the stock market means that you are investing in real businesses. Every share of stock is a fractional ownership claim on a real business. And the goal of a good business is to make money for their owners.
Benjamin Graham taught the long term value investing strategy of purchasing stocks at a price below their intrinsic value; then holding them until their price reflects the real value of the company. This takes time.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” Warren Buffet
Numbers don’t lie – corporate earnings growth, discounted cash flow, and debt-to-equity ratios are easy to measure. Quality investing means paying fair price for a great company rather than a low price for a mediocre company. Companies with pricing power, strategic assets, powerful brands or other competitive advantages have the ability to outperform in good and challenging times.
Take Control with Dividends – not Emotion.
Income producing investments that meet your income needs can build a safety net to prevent panic selling. While building wealth over time is nice, you may need to fund your expenses today with income from your investments. If the stock market goes down and your high quality incomes stock keep paying steady, you will be less likely to panic sell during market downturns.
Even if you reinvest the dividends rather than take distributions, quality companies with sustainable profits can pay and grow their dividends. There are few more powerful long term investing strategies than dividend growth compounding.
In summary, the key points are patience to reach your long term investment goals, value-investing in high quality companies, and reducing the urge to panic sell with income producing investments. Call us if we can answer any questions. We are stewards for you – committed to addressing complex issues to give you the freedom to pursue what is most important to you.
Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit OlsonWealthGroup.com
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Registered states include: AR, AZ, CA, CO, FL,GA, IA, IL, IN, MA, MD, ME, MI, MN, MO, MT, NC, ND, NV, NY, OH, OR, PA, SC, SD, TX, VA, WA, WI, WY. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. All performance referenced is historical and is no guarantee of future results.
Stock investing involves risk including loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.