Junk Boating and Investing
Ahh, Hong Kong summer…hot, sweaty and gross, just the way we hate it. But at least we can all find refuge on a junk boat. Well, sort of. There are many factors that contribute to your experience at sea on one of these 6-hour(!) outings. Some factors you can control (e.g., who you invite, how much you drink), some you try to control (who other people invite, how much your spouse drinks), and some you can’t possibly control – notably the weather. It’s how you handle the uncontrollable factors that makes all the difference. Case in point: my most recent junk boat trip one rainy, rocky, T1 Saturday in July.
As a co-host of the junk boat, I wanted everyone to have a fabulous time, despite the Gilligan’s Island/S.S. Minnow conditions. But what I observed – in my cheap prosecco haze – is that it really wasn’t the weather that mattered. It was an individual’s attitude towards the weather that was make-or-break…much like an investor’s reaction to a bout of market volatility. Two archetypes unfolded:
1) The Panic Seller: Riddled with nausea, this guest wants off the boat NOW. He/she is fixated on the waves and is antisocial at best. As far as he/she is concerned, it is a day lost at sea.
2) The Big Picture Thinker: This more seasoned junk boater knows the key to avoiding motion sickness is to focus his/her gaze on the horizon. 15-foot waves? Pff – this too shall pass.
And so it did. By the afternoon, the floaties were floating and the free flow was flowing. Even the Panic Sellers found something to talk about other than the shortcomings of the Hong Kong Observatory.
As investors, we should all aspire to be Big Picture Thinkers. When markets are choppy, it’s my job as a wealth manager to convince you to stay invested and avoid selling at the wrong time. This means shifting your gaze from daily market fluctuations (waves) to a much longer-term perspective (horizon).
Take the performance of the global equity market since January 2000 for example¹ . If you focus solely on the monthly fluctuations (waves), you would be hard-pressed to stay invested during the rough times, as seen in the chart on the top.
The other (better) way, is to focus on how much your wealth can grow if you stay invested, as shown in the ‘horizon’ chart on the bottom. Ten thousand dollars invested in global equities since January 2000 would have more than doubled by the end of July 2018. Better yet, if you stick with this discipline, you will have a guaranteed source of bragging rights for many junk boat seasons to come!
¹ MSCI All Country World Index (USD, net div). Source: Dimensional Fund Advisors.