Striving Towards Investing Boredom

We as a species have this incessant need or perhaps desire to not feel the relegation of boredom. When I was growing up, I would say “I am bored” and my parents would say someday you will miss being bored. I didn’t really grasp exactly what that meant until the onslaught of adulthood fully set in. Now I do on occasion find myself bored and I still very much dislike the feeling and seek out a remedial solution to that nagging feeling. But as the title suggests there is some power in being bored. After all how much control over ourselves do we really exercise? When we can’t go 10 minutes without engaging with our phones or always need to have a podcast on or a show running.

My assumption is this is some lizard brain programming stemming from when constant activity was necessary to survive. We inherently don’t like the feeling of boredom because it spurs us towards action and disdains our current inaction. In the past it might have been to seek out food or work on a shelter. Now it’s just as likely to have me sitting in front of my computer seeking solace in a video game. This has been a very roundabout way of getting to my point. Being bored can be very powerful when it comes to investing for the long term.

Ideally you have established a strategy based on a sound thesis for why you are investing in an asset. Whether that be individual stocks, ETFs, Mutual Funds, alternative assets, or otherwise. When you began you thought that this strategy would yield end results that you would be satisfied with. If that is not the case, I encourage you to take a step back and ask yourself why you invested in these positions in the first place. The most important factor for many investors my age is time. We have it on our side the market could go down 50% more from where it has already fallen. ?Historically speaking we should still come out ahead down the road.

To illustrate this point and emphasize why having a strategy you can effectively be bored with take a look at the graph below from JPMorgan's Guide to the Market. It illustrates on any given year over the last 30 or so years. That when the market is up it has also been down significantly at some point during the year. So having a strategy that allows you to mentally stay the course historically is very important. It avoids things like short-term gains and missing the upside if you sell out due to a decline.

It is admittedly easy to stay the course when things are going well in your portfolio. The numbers are green and they keep going up and that feels good, we feel smart, we think we know something others don’t. If the last year has taught me anything it’s that I in fact know nothing, everything is “priced in” including our own proclivity for exuberance, and I at best was lucky. A quote to illustrate another facet of lizard brain: “Financial Losses are processed in the same area of the brain that responds to mortal danger” – Jason Zweig. When my portfolio started declining, I began asking myself questions; Maybe something more cyclical? Maybe defensive consumer stocks? Maybe I just liquidate and sit in cash, or treasury yields are going up never owned one of those before maybe?

What I should have been asking was if my original thesis and strategy was one that I can stomach for the long-time horizon I am fortunate enough to enjoy. The answer was not at all. I was way overweight domestic growth stock which had been enjoying historically unusual levels of appreciation. My international exposure was laughable at best, and I frankly couldn’t handle the level of decline in my portfolio that I was seeing. I was beyond even my triple leverage curious risk appetite.

We have a wedding reception to pay for, so I liquidated everything. At least that is what I tell myself, but realistically it’s because I couldn’t handle the situation I had put myself in. ?So, with more research and my 2nd major market decline since I’ve had real skin in the game investing. I restructured my portfolio to something I can live with long term and although the upside prospects aren’t as high the lows hopefully won’t be nearly as low. You can see my personal portfolio here: https://m1.finance/-KQivN0u9L-O

I am hoping that I can arrive at some level of self-satisfied boredom with this portfolio and do my best to continually DCA every week and avoid any large-scale tweaks to the positions. Warren Buffet said it best: “Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ. Once you have ordinary intelligence what you need is the temperament to control the urges that get other people into trouble Investing”. I had set myself up for short term success while neglecting to accurately consider my risk tolerance. As Buffet stated I lacked the temperament to stick with my strategy. In hindsight I don’t think it was a very good one. At the very least it was not predicated on the prospects of long-term success.

I have talked about the pertinence of establishing a strategy you can be “bored” with even on the downside. But what about the upside, well I have some lovely anecdotal information to exhibit this point. On December 5th, 2016 I purchased 230 shares of AMD at a cost basis of $8.62 per share. The stock then went on to increase at the time roughly 25% to where I sold on January 7th at a cost basis of $11.06. It was up a bunch and I figured I should sell and buy into something else. You could say I was bored, and I wanted to find my next big hit. AMD as of today is trading at $63.02, I missed out on hundreds of percentage points of gain and over $10,000 dollars had I just been satisfied that I made a good pick and didn’t feel the need to change it up. If I managed to sell near the top, I would have made roughly $34,500 dollars off an initial investment of less than $2,000 dollars. It’s all hindsight of course and a valuable lesson. If you can derive a strategy that you are comfortable with and so long as your thesis holds you should be content with being bored. Ideally just adding more to your existing positions and when things go down nothing changes. A “boring” strategy over a long enough time-period can yield impressive results. While also keeping you mentally level and negating some of the anxiety and panic that often accompanies downturns in the markets.

Disclaimer

Jon Hogan is an Investment Adviser Representative of?Schwarz Dygos Wheeler Investment Advisors LLC, a registered investment adviser that?only conducts business in jurisdictions where it is properly?registered, or is excluded or exempted from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.?The firm is not engaged?in the practice of law or accounting.

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