31 | Patient Investing, Part 3 of 7: The Pilot Has Turned On The "Fasten Seatbelt" Sign

Investing in a manner that you believe in and in which you have a baseline understanding knowing that, regardless of strategy or plan, the only guarantees are that someone will always outperform you and that how you behave during the inevitable unsettling times will be the biggest determining factor in your lifetime returns. Owning businesses tends to increase potential returns, diversification tends to make the ride smoother, long horizons tend to increase the probability of positive returns, and above-average patience is a superpower.

No matter your level of belief, depth of understanding, or specific strategy, the unsettling times are guaranteed to happen.

Nobody, literally not a single person, experiences investment growth, or any kind of growth, without taking some steps backwards along the way.

Your ability to stay the course and remain invested during the periods where you are below your most recent personal high-water mark are the second most important skill you'll have to hone to be a successful investor.

One part is numbers - the best days actually come in the worst times. The depths of the Great Depression, Black Monday, the Financial Crisis, and the COVID-19 Pandemic are where the best days are found. See here.

If you miss out on those days, the implications are brutal. See for yourself...

No change in strategy or hack is making up for that gap. That is only one 20-year period, but all the other 20-year periods look the same. It doesn't matter what you did in practice, what type of equipment you're using, or what tricks your coach told you, if you can't stay in the game when it is the hardest to play, you will lose.

The numbers are easy to see. The trickier part is the psychological side - trusting simplicity instead of increasing complexity.

Doing nothing or "gritting it out", seems too easy to be right. I think this confuses "simple" and "easy".

You know what's easy...

"I think I'll wait until everything seems like it's under control and then I'll invest."

"I think I'll invest in CDs or I-Bonds to get a guaranteed interest rate."

"I think I'll switch my investments to something else because that will make me feel like I've done something productive amidst the chaos."

You know what's simple, but hard to actually do...

Have the discipline to keep enough cash in the bank to provide some cushion to navigate the unsettling times.

Have the wherewithal to acknowledge that the unsettling times are going to happen, but it's impossible to know exactly when they will happen.

Have the self control to not look at CNBC, social media, or your investment statement if that is what is necessary to keep you from making a reckless decision during unsettling times.

Have the courage to have a conversation with someone else before those unsettling times push you to the brink.

As I often like to say, if it seems hard to do, then that's probably a sign that it's the secret to success.

Additional Reading

Fees vs. Fines by Morgan Housel

Is market timing worth it during periods of intense volatility? by Jack Manley

Time the Market Game by Personal Finance Club (don't fall for Jeremy's context-less bio)