What to do now?
For myself and my friends who invest, the question of “what to do now” frequently comes up. It is a topic of discussion that usually ends in shrugged shoulders, headaches and no clear decision about what to do.
I realized after years of talking to investors in my Hedge Funds that there really were no “right” or “wrong” answers in regard to the big picture of what to invest in, when to invest, when to go to cash, international versus domestic, private versus public equity and so on.
The reason I can say this with certainty is that these are all large-scale generalities.
When one views the world, the global economy, US trade deficit, a certain sector of companies, etc., one is looking at a puzzle that is impossible to decipher. It is simply a mass of data, undifferentiated. The resulting evaluations will always be flawed and subject to interpretation. That is why most conversations about these things tend to dead end. I myself have started these conversations many times, certain of my viewpoint, only to be convinced by my “smarter” friend that I was looking at it incorrectly or omitting certain other important data.
I think this may be where the investing adage came from: “Paralysis by Analysis”. The net result is uncertainty and no action.
So this begs the question, does the question I posed even need to be answered? My answer is two fold.
I have found that at their core, a lot of investors are worried, scared or anxious about a “worst-case scenario”, in which the economy, stock market etc. goes into a thermal nuclear meltdown, leaving them destitute and bagging groceries at the local grocery store. With that as a backdrop, no wonder it is hard for them to pull the trigger on a specific investment.
Now, at the other end of the spectrum, lives the evil twin brother of Fear, one who we all know well, Greed! There is really not a lot to say about this guy, other than he dresses really nice, drives a nice car, flies private and always seems to have a smile on his face.
Hmmm, which one would you like to “be”, the quivering guy in the corner worried about the worst case, or the tan man with the umbrella drink?
Well, if you are anything like me, your answer is probably neither. You just want to live a good life, have a little extra cash, help some people along the way and generally be in control of your life.
Now, let me answer the question I posed earlier.
The first part of my answer is this: If the worst-case scenario does happen, then truth be told, nobody is going to be in good shape. I have debated this for hours with some really smart people, and this is one point I never get shaken on. If we have a full-scale meltdown, with its resulting chaos, poverty, political and social unrest, man it is going to be ugly. Imagine being holed up somewhere with your gold coins, your bars of silver or whatever you have chosen as your backstop. Now imagine Mel Gibson, or some other not-so-handsome dude, patrolling around in an old blown out police car looking for food and maybe even looking for you.
So, by all means have a contingency plan. I do. We can talk about mine over coffee one day.
But the point being, if the going gets really tough all sectors, all asset classes, all currencies, all countries will have a tough time. So, my answer here is, “Stop worrying about it”. Make a plan; put some candles, some cash, and some gold in a box. Do something to increase your personal ability to survive, something like education or other personal enhancement. Then get in the game and go out and live.
The second part of my answer is also simple: “Don’t make a single investment that can take you out of the game”.
OK, so maybe this is not revolutionary. It sounds like the old adage, “don’t put all your eggs in one basket” or “run a diversified portfolio”. Well, I do believe this is true. And this is what I do with my money. But I will add one other relevant fact. DO NOT INVEST IN GENERALITIES.
As I outlined above, this is what tends to be talked about in the press. It is what investors tend to look at when thinking about an investment. Witness the Internet craze, where all dotcom stocks were winners.
So, I believe that the answer to the above when it comes to getting into actions is what it has always been and will always be. Invest in good companies that have great management and produce valuable products and services, which people need and are willing to pay for. This is what I am doing now, and what I will be doing for the rest of my investment career. It won’t matter what China is doing, what the trade deficit is, what the dollar/euro exchange rate is. I will simply be looking for the best companies and the best people.
As I said before, these other things are “unknowable generalities”, and frankly who cares. I have had many smart people tell me why I should be buying this, or selling that due to the tidal shifts and atmospheric anomalies that are certain to happen once Iraq revalues their currency. Or when the Trillion plus trade deficit reaches critical mass and China decides to no longer peg to the US dollar or when Tom Hanks stops making blockbuster movies or…
You get the idea.
One additional thing that I would like to mention for this blog which I believe is relevant here has to do with setting a realistic return expectation and also not being too early to the party.
I have found that if I set realistic goals for return, I will tend to focus on more stable and predictable investments in my first phase of analysis. In other words I don’t look for things that are going to make me triple my money or ten times in just a few short months. For me, a realistic target is about 10% annually, +/-.
Also, I tend to stay away from companies or ideas that are totally new and are going to revolutionize something. Don’t get me wrong; I love this stuff, I even think of new ideas all the time. It is just not something I invest in routinely or if I do, then it is a very small percentage of what I have to invest. Which also doesn’t mean I stupidly throw away money hoping to hit a home run. We probably have all done this at some point or another only to realize, you can’t do that more than a couple of times or you should not have done it at all.
The reason why I stay away from these things is simple really. It tends to take way more time and money than anticipated to make one of these ideas work. Usually companies run out of money before they make it. And sadly, many of the ideas work, but it is the companies later down the line that have taken advantage of all the inroads made by the companies that failed. Of course, this is another arguable point and nearly all Venture Capitalists have made gazillions on being first. But, they have a much bigger checkbook than you or I.
Will the world make it until the end of 2014? Will the US economy hold up? Will the overvalued US stock market crash?
In the immortal words of Bill Cosby, ”have a coke and a smile”.
Find some good company to invest in, put a little money to work, donate some time and money to charity and go enjoy your life!