A couple weeks ago, I made the mistake of going to bed with five minutes remaining in the football game between Tennessee & South Carolina. With South Carolina having a two touchdown lead, I thought for sure the game was over. My 6 year old son excitedly awoke me the next morning and told me Tennessee won in overtime. As a Tennessee fan at heart, this is a good lesson not to throw in the towel while there is still time on the clock. It is also a great example of how quickly momentum can shift. These happen to be good lessons that can be applied to football and investing. Many investors pay too much attention to short-term investment returns and throw in the towel too early when their investments begin to underperform the index. Others may under-estimate the market’s ability to reverse its previous course on either on the upside or downside.
The truth is there are ebbs and flows in investment performance, just as there are ebbs and flows during four quarters of a football game. As much as I’d prefer Tennessee to show consistent performance and score at least one touchdown per quarter, it’s more likely that the scoring sequence will be lumpy. As nerve-racking as that can be for Vols fans, the only thing that really matters is the score is when time runs out on the clock, not the score at halftime. Great coaches don’t focus too much on the scoreboard during the game insomuch as they focus on the playing field and making sure their game plan is executed successfully. In a similar way, successful investors don’t focus on short-term performance comparisons, but they do focus on the fundamentals of the companies they own and how those fundamentals are producing value for shareholders. Investing legend Phillip Fisher once said, “The stock market is filled with individuals who know the price of everything, but the value of nothing”. Value is what drives long-term performance and is the equilibrium that tempers our enthusiasm when markets are making new highs and encourages us that better days are ahead when markets are making lows. The lesson for advisors and clients is not to get caught up in performance comparisons over the short-term when there is plenty of time left on the investment horizon clock. Instead, keep focused on communicating goals and holding advisors accountable for making sure your money remains on the right path for long-term success.
As Thanksgiving approaches, we are certainly grateful for the relationships we have established with each of our clients and hope you enjoy Thanksgiving with your families and friends.
Scott Smith, CIMA®