Investors sabotage

5  Jan 2019

Dear Fellow Investor,

There is an interesting book- Heads I Win, Tails I Win by Spencer Jakab who is a financial journalist with the Wall St Journal.

He details many examples of how investors sabotage themselves.

A tragic example is the story of Peter Lynch who ran Fidelity Magellan  Fund from 1977-to 1990. He had only 2 losing years but his average annual return was 29 % but tragically  the average investor in his fund only earned 7 %.

The reason is that the average investor would sell in a market panic and buy when there is market euphoria. Another words they sell low and buy high which is exactly what Warren Buffet advises against.

If we are careful in our share selection and focus on buying quality businesses at reasonable prices which offer recurring revenue, rising dividends  and steady and growing earnings we simply buy, hold  and avoid getting caught up in the news cycle. To earn these good returns we have to stomach corrections and drawdowns such as the one we are now experiencing.

Of course, if the business we buy becomes disrupted, shows earnings and revenue declines, we need to re-examine why we bought in the first place.

An ancient epic of what is now happening and how to protect ourselves from the volatility.

Below is an illustration of an ancient epic about Odysseus,  a Greek king.

After the 10-year long Trojan War, Odysseus embarks on a journey home to Ithaca. On his arduous way back, Odysseus had to pass Sirenum Scopuli, a chain of small islands that were home to the Sirens, creatures with the face of women but the body of birds.

The Sirens were deadly because they sang and played beautiful melodies that would enrapture passing sailors, so much so that the sailors would steer toward Sirenum Scopuli, inevitably crash their vessels on the islands’ rocky terrain, and drown. Our hero Odysseus knew this. But he also badly wanted to hear the Sirens’ tunes. And so, he devised an ingenious solution.

Odysseus was certain that he would fall prey to the Sirens’ seductive voices – all mortal men do. So, he instructed his followers to tie him to his ship’s mast and to ignore any of his instructions to steer the vessel towards Sirenum Scopuli. He also ordered his men to fill their own ears with beeswax, so that they would remain immune to the Sirens’ call. Odysseus’ instructions were for him to be released only after his ship had sailed far beyond the Sirens’ home.

His plan worked and he and his crew survived.

His story is a metaphor for markets today.

Tune out the CNBC financial news cycle, the media headlines the volatility,  the intraday price movements which stimulate fear, panic and greed.. Focus on what really matters your quality businesses and your regular dividends received.

Invest well and grow your wealth, Bill

Todays critter is  a  leopard from the 3 D museum in Langkawi. There are many impressive 3D animals in the museum that look real just as all the fake news on CNBC that appears real..  :