The importance of being humble.
Some self-help gurus, I've read, will for a fee rewire your brain for success. Rewiring brains appeals to me as an investment manager. After many years, I have come to the conclusion that it's your behavior that determines whether you'll reach your financial goals, not whether you own the hot stock or fund. The greatest danger to financial success is your emotional attraction to short-term stock market movements at the expense of a rational, long-term investment plan. It's easy to get greedy when the market goes up and fearful when it goes down.
I've also concluded that there's little new under the sun, especially where human nature is involved. Those "modern" bromides from the self-help gurus are often repackaged wisdom from works we read (and immediately forgot) in first-year college courses. For example, Psychology, a classic textbook by William James, suggests that self-esteem is a function of success divided by pretensions. He then illustrates the importance of pretense in the equation by pointing out the odd thrill we feel when we finally give up striving to be young or slender.
Apply James' formula to investing in the wonderful bull market of recent years. The technology mania caused the denominator (pretense) to rise dramatically. "Genius is a rising stock market" is an old but true aphorism cautioning us about proclaiming our brilliance in light of what was simply the market's action. In early 2000, we were not smarter than we were five years before when the Dow was 6,000 points lower. If anything, it's likely we were dumber, as greed grows at the expense of a rational investment process. In the same vein, we are no dumber now that the Nasdaq Composite has fallen more than 60%. In fact, we may be smarter, as losses tend to sharpen focus and add a degree of humility.
As pretensions rose during the boom years, just about everyone had neighbors, in-laws or co-workers incessantly bragging about how well they were doing in the stock market. You probably felt bad about falling behind these smarter and more aggressive brethren. It was easy to forget that most of what you were hearing was selected greatest hits from the speaker's investing record. When you talk about your golf game, is it about your best recent round or your worst?
Trying to match the exploits vaunted in cocktail-party chatter is a losing game. Think of the pretension it takes to believe that you have better information on a company than the 1,000 Wall Street analysts who follow it. But the financial industry generates commissions by promoting the possibility that you have an edge over the pros -- you know, just go to the mall, see what products are popular and invest in those companies. It makes me wonder: Don't the analysts ever go to the mall?
The cavalier way many people treat their investments reminds me of Maurice Chevalier's observation that the source of trouble in the world is that people choose their future mates in lighting so dim it would be unacceptable if they were buying a suit of clothes. People who would fight a $100 shortfall in their paychecks all the way to the Supreme Court will throw away $10,000 on a hot stock tip without giving the matter a second thought.
Since we just lived through it, it's hard to assess the effects on our conduct of the stock market obsession of the past few years. I chuckle when I hear social observers refer to the 1980s as the "decade of greed." Imagine Martians observing your circle of acquaintances in both the 1980s and 1990s. If asked which was the "decade of greed," how would they answer? In the 1980s, you could name the greedy people: Ivan Boesky, Carl Ichan, Leona Helmsley.... In the 1990s, millions altered their behavior drawn by the lure of easy money and, even worse, pretended they were savvy Wall Street speculators.
My business is to help clients with the "success" part of James' equation. As for the denominator, we can all help by decreasing our pretensions. Not telling just anybody who will listen about your best recent investment and not equating market movements with your intelligence will both help your self-esteem and make the world more pleasant. While the market declines of the past year have been unnerving, one salutary result is that friends and co-workers are inclined to talk about children, sports or their gardens rather than their portfolios.
Bill Berg is president of Sigma Investment Management company, a Portland-based independent investment management firm.
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|Title Annotation:||investment strategies|
|Comment:||The importance of being humble.(investment strategies)|
|Article Type:||Brief Article|
|Date:||Jul 1, 2001|
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