Markets are trying our patience and emotions right now. We enjoyed the relief rally on Wed only to be sucker-punched on Thu…and what a blow it was. It’s ok to feel angry, frustrated, scared or hopeless…or if you are like me, all of these emotions at once or in alternating waves. No doubt that investors are losing a lot sleep these days.
As I try to decide what to do next, I am looking to firefighters for inspiration and technique. There is a lot we can adopt from their mental toughness and their planful execution. So let’s lay out an approach that might work for us.
You are competing with yourself as an investor and no one else.
We never see firefighters competing with each other. Its almost always, just them and the patch of land that they need to tackle. They get into a mental zone, laser-focused on doing what they need to do with the flames in front of them. There is no p@#$ing contest…my fire-hose-is-bigger-than-yours nonsense.
The last two years of fintwit and their monthly portfolio report-bragging has done more harm to the investing community than we realize. Doing a monthly report is a good investing habit as long as you are doing it to learn from it yourself. In times like these, we should remember that we are responsible for our portfolio and its performance. No blame, no boasting. We own it and we work it ourselves.
Have an investing plan and stick to it.
Every firefighting shift (forest fires) have a goal for the day and roles assigned to each person or team. Once they have their orders, they set out for their geographic section and they work hard to complete their assigned tasks. There are no lone-rangers in the forests doing their own thing. Thats just Hollywood fantasy.
As investors, our plan should be predicated on questions like: What is my time horizon? Based on my time horizon, how should I structure my portfolio? How much risk should I take in my portfolio? Do I have an emergency cash reserve? How long can I handle a market downturn? It is imperative to take the time to identify the answers to these questions (and many more) before we invest a cent of our money and even more so before we make any portfolio adjustments in times of stress.
Learn how to evaluate investing opportunities and use that process consistently.
Firefighters train for many hours and this includes how to put out a fire, how to be safe while keeping others safe and how the elements around you can help or hurt. It’s not just about pouring water on the flames and hoping it will die. You learn about weather patterns, a bit of chemistry, biology, construction materials, human behavior, team work, project management etc.
As investors, it is critical that we learn about how to evaluate a company’s performance and use this understanding to decide which companies we want to invest in. When DDOG issued an excellent Q1 report yesterday, yet the stock was under pressure, how would you decide whether to buy or sell or hold? If you don’t have an evaluation process, you are investing blindly. And if you are just deciding based on what others are telling you, then you are still investing blindly, my friend.
Don’t be stubborn. Adjust your plan as needed.
Fire-fighters are hyper aware that they do not control everything. In fact there is very little they can control…perhaps people power, water supply, equipment deployed etc. Everything else (and its a lot of everything else) is up to the elements, the weather, forces of nature. Yet they keep executing the plan. They work with what they can control and more importantly adjust their approach frequently.
Blind stubbonness hurts portfolio returns like nothing else. I am super guilty of this human flaw and I see it often in my fellow investors. “You will have to pry that SPAC from my cold dead hands.”, “This tech company is going to change everything!”, “But it’s a hedge against inflation…”. The words LTBH plastered all across financial media and investor newsletters have been so taken out of context, that often it is blindly followed until one day we realize that a position is 90% down and there is almost no chance of us recovering our money. And macro economic conditions do matter! Anyone who tells you otherwise is blowing smoke up your… We have to be flexible, be like water (as Bruce Lee said) and be willing to walk away when needed.
Celebrate successes with people whom you care about.
When a forest fire is put out, the entire community breathes a sigh of relief, the clean up starts and they take some time to celebrate with each other. After all that is the entire point…to help your fellow neighbor. Celebration puts everything in perspective and helps a firefighter understand how and when to do it better next time.
We, investors, need to develop habits that help us “walk away from the screen”. On good days, it is easier to do so. On down market days, it is even more imperative to do this. After all this is why we invest, to improve our lives and that of our family and loved ones. Go out on a date night, watch your kid’s baseball game, do an art project with your daughter, cook a meal with your teenager, call your Mom to gossip for a while. Taking our minds away from the numbers is great therapy and allows us to reset and come back to it with a fresh mind the next day.
So what’s Beachman’s panic level and what am I doing?
- I am heads down reading earnings reports, tallying the numbers, rescoring the companies I own and deciding whether I should buy more, trim some or just hold. Thats my process and I am sticking to it.
- Even if my favorite growth stock is getting crushed, as I complete the analysis described above, I know myself whether the company is being fairly valued by the market and I can decide accordingly.
- Perhaps more interestingly, if I need to buy more, I can take advantage of attractive prices, because I have a longer horizon for these high conviction holdings.
- And I am closely tracking macro conditions to understand how they could impact the broader economy and my holdings.
- I read this board and a few others every day. I try to learn from other investors (not blind-following) about financial analysis and investing techniques. And oh btw - the math required is 2nd grade level math, so thats not an excuse not to do it. We all need to eat our veggies.
And as my favorite animated characters often say…“Smile and wave, boys…smile and wave”