Singer Jimmy Jones had a catchy song at the top of the charts
in 1960 titled “Good Timin’”. It
included lyrics that went something like this:
“Who in the world would have ever
known, what Columbus
could do,
If Queen Isabella hadn’t hocked her
jewels in 1492?
But she had timin’….”
I thought about that song after reading a recent Wall Street
Journal article about billionaire hedge fund manager George Soros losing nearly
a billion dollars in the stock market in the aftermath of the presidential
election. It seems that Soros bet
against the stock market rising; but in fact, the stock market rose 9% in the
weeks right after the election. It
should be noted that Soros gave millions of dollars to pro-Clinton and
pro-Democratic party political action committees (super PAC’s) in the run-up to
November 8.
I don’t think 2016 was his year.
Fortunately for you, you didn’t have your money invested
with Mr. Soros. While his personal
investments lost big bucks, even his company’s more diversified portfolio only eked
out a 5% gain for the year. The S&P
500 (a broad representation of the total stock market and a benchmark for general
stock market performance) was up nearly 10% in 2016 and probably more like 12% if
dividends were reinvested. And you could
have made a similar gain on your own investment by just having your money in an
S&P 500 index fund that cost you as little as a couple of tenths of one
percent of your invested money. I think
it’s safe to say that investing in Soros Fund Management comes at a somewhat
higher cost.
So what do we learn from this:
Lesson 1: The experts aren’t always right. Enough said there.
Lesson 2: “Timing” your investing is typically a losing
strategy. Yes, it’s possible to win big;
but it’s equally probable that you will lose big. And
investors like you and I don’t have the financial cushion to lose big.
If you are invested in a 401k account, you’ve likely heard
the adviser from the firm in which your money is invested talk about “dollar
cost averaging”. Without expounding on details, the gist of that strategy is to invest consistent amounts of
money at regular intervals. It’s akin to
the “buy and hold” approach that I prefer:
select a few high quality mutual funds (or other investment vehicle of
your choice), invest in them regularly, and don’t go switching them around
whenever you get spooked by something in the news. You may recall
that on election night the stock market futures (supposedly predictive of the
next day’s stock market activity) lost hundred of points. If you had panicked and moved out your
investments you would have missed the market rally. Even if you got out, then saw the market was
going up, and decided to leap back in, you would have lost out on the critical
early gains that would have jump-started the growth of your investment.
Lesson 3. Maybe you should leave your politics in the voting
booth. Did Mr. Soros’s political views
and hopes sway his investment decision and perhaps blind him to other factors
that would have led him in a different direction? Possibly.
Consider this: His former assistant made beaucoup bucks in the stock market after the election. He supported the Republican ticket. Are you willing to bet your financial future
on what voters in Wisconsin
do in November?
So what does history tell us about Queen Isabella’s timing
of her “investment” in discovering America
for Europe ?
Well, she had actually invested in what was supposed to be a venture to
find a shorter, all-water route to Asia and
its spices and other riches. That didn’t
quite turn out—not unlike some investments you and I may have made in the
past. On the face of it, the investment
was a failure. But if Spain had held
on to some of the land she claimed from Columbus’s (and others’) ventures, the
initial investment would have paid off handsomely. Can you imagine what Florida would be worth today? An extreme version of “buy and hold”, huh?
And yes, lesson 4: song lyrics are worthless as investment
advice.
Till next time,
Roger
“God makes everything happen at the right time. Yet none of us can ever fully understand all
he has done, and he puts questions in our minds about the past and the
future.” Ecclesiastes 3:11 (CEV)
