FMD Capital Management

Everyone Is A Trader

Written by David Fabian, August 16th, 2017

The notorious website Zerohedge has a thought-provoking tagline that reads: “On a long enough timeline the survival rate for everyone drops to zero.”  There’s plenty of truth to that sentiment and drives the philosophical underpinnings of their news and/or investment opinions.   I’m not promoting their outlook, but I will take my own thinking down a similar track and add that:

“On a long enough timeline, everyone is a trader.”

One of the most important observations I have made over the course of my life and investment career is that people don’t love to invest.  They love to swap one story for another.  They trade one job for another, one car for another, one spouse for another, and most importantly one investment strategy for another.

Even the most stalwart index advocates are ultimately traders in their own right.  On the surface, they preach to abhor change and that any moves are only to rebalance their accounts back to strict guidelines.  But that only holds up for so long.  When the trend is your friend so to speak.  There is a breaking point for everyone where you are forced out of your comfort zone and ultimately capitulate to changing your views.

Life changes, market changes, and other unexpected events will test you over the marathon that is building your wealth.  Your political views will change, your risk tolerance will change, your social constructs will change.  All of these subjective criteria will ultimately change who you are and what you perceive to be important goals for your money.

You may be a diehard, growth only, stock picking savant in 2017 who morphs into a fixed-income, gold hugging, ETF lover by 2050.  That’s life.  That’s reality.

If you have been investing for more than 10 years, think about where you started and where you are now.  I would bet that it’s lifetimes apart and that your experience has shaped your current views.

The one thing that most people fail to grasp is the opportunity cost of these trades over their lifetime.  It’s easy to weigh the pros and cons of trading in your old car for a new one.  You know the amount of money that will exchange hands and the features you will receive for it.  Those are tangible and evidential reference points.  There is some uncertainty about the future with respect to reliability of one car versus another.  However, there are low-risk assumptions that can be made in this regard as well.

With investing it’s much different.  Everything is unknown.  If you move from 90% stocks to 90% cash today, it may be the best or worst decision of your life.  There is no way to tell without the benefit of hindsight and there is also no way to make up for the time you miss out on if you are wrong.

If you are in the midst of such a quandary or are considering making a substantial change (trade) to your investment portfolio, I would recommend you consider the following:

  • What led you to the point where you are considering making this change? Was it underperformance, costs, or some other factor?
  • What are your expectations for this new investment strategy and what would make you ultimately make another change?
  • What are the biggest benefits and risks of what you are moving towards and how do they compare to your current situation?
  • How will you evaluate success or failure and over what time frame?
  • Have you made a thorough evaluation of the marketplace or simply heard a commercial on the radio for something new you want to try?

The hardest thing to do in investing isn’t picking the right stock or timing the market perfectly.  It’s being able to stick with a strategy you know you can live with through the best and worst the world can throw at it.  Even if that means you give up a little on the upside or don’t perfectly avoid every tick on the downside.

Understand that if you do feel the need to make a change (or trade) that you do so with as much careful thought as possible.  Weighing the pros and cons will ensure you are making the right decision with as much information available to you at that time.