Mindset

Yesterday Greg Newton from Naked Shorts had a post that I felt was very Zen-like that I wanted link to and expand upon. In the post Greg discloses having some of his money with John Hussman, notes that Hussman is struggling this year but professes his faith in what Hussman is doing.

This is important. A given approach will not be the best approach for every phase of the market cycle. This year has not been a good one for Hussman's approach. Greg's comments take a longer term view than simply what is working right now.

Ooh this method had a bad year, I should bail. That will probably not get it done for the long term. A lag does not mean something is permanently broken. History shows Hussman knows what he is doing. If you are buying an active manager one way or another (fund or separate account) you are buying a belief that they can repeat past success. At some point a manger may lose it and if so you will need to make a change but a really bad year is not much of an indicator.

The same applies to a theme you may be invested in for your portfolio that you manage yourself. As an example I believe in Iceland as a long term theme. I may end up being right or wrong but I believe in it. To my way of thinking the correction that happened earlier in the year was not a reason to bail. I was not going to be right or wrong after just a few months.

Long time reader RW left a comment yesterday that is also germane to this. He described this market as a momentum market and said that value based investing is not going to do very well in a momentum market. You may or may not agree with the adjectives but the comment is very insightful. Over your investing lifetime there will be periods where you lag and periods where you lead the market. If you are reasonably close to the market over longer periods of time and you save properly you give yourself a great chance of having enough when you need it and that is the important thing, not that you beat or lagged the market by x% 15 years ago.