Nothing.
That's all. Learn to do nothing. For a long, long time. The Corporate Leaders Trust Fund (now operating under Voya LEXCX) was set up in 1935. The founders bought thirty of the largest companies at the time, and then did one amazing thing - they prohibited any changes to the portfolio. That's right. Eighty seven years of doing nothing. Since then, they have beaten 99% of their more actively managed peers and have beaten the S&P 500 over the past forty years. Astounding.
How did they win?
First, they picked well. By selecting thirty of the largest companies in 1935, they picked companies that had come through the Great Depression, and weren't outrageously priced at the time. Second, they kept their costs low. You don't need a bunch of highly-compensated wall-street geniuses if you have literally forbade stock selection. Even today, they charge 0.5% - expensive compared to index ETFs, but half as much as their competition.
Third, they avoided taxes - by keeping their turnover low. If you don't sell, you don't pay taxes. Finally, they avoided all the emotional and cognitive biases that haunt the average investor, sapping their mental health and bank accounts at the same time.
Say you were an early investor in a small company - a retailer called Tractor Supply that sold farm supplies and apparel to mostly rural residents. You invested $1000 at about $1 back in 2001. Do you think you would have avoided all temptation to sell and book your profits all the way up to $17,000 by 2006? Do you think you could stomach a decline back down to $8000 in 2008? Having lived through that nightmare, would you have simply held on to your investment when it got back up to $17,000 by 2010? Would you have suffered through another 50% decline in your investment in 2017? ($95,000 down to $50,000) Would you have stayed patient over the next three years until it got back to its previous high? Instead, if you bought that same investment in 2001 and then just forgot you had it - you would have $229,000 today! Congratulations. There are two parts to my financial advisory practice. Investment Management, where I managed funds and pick investments for clients, and Financial Planning, where I spend time getting to know my clients' goals, risk appetite, recommending tax strategies and optimizing their retirement plans.
It is clear to me that I add the most value for my clients when I do more of the latter and less of the former. More planning, less investing.
This material is intended to be of general interest, not personal financial advice or a recommendation to buy, sell or hold any security or adopt a particular investment strategy. Your circumstances and attitudes toward risk matter, and only an advisor working with you can give you specific advice. All investments carry the risk of loss, including loss of principal. Stock and bond prices can be volatile. Past performance is not an indicator or guarantee of future results. Diversification does not guarantee profit or protect against risk of loss. This material may not be reproduced, distributed or published without prior written permission from Sanjay Pamurthy/Artham Advisors LLC. Data from third party sources quoted here has not independently verified, validated or audited. Although information has been obtained from sources that Artham believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. Artham accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
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