Last month, I began a series of blogs on what I consider to be the top five virtues of a wise investor. The first characteristic I discussed was curiosity. Today I’m discussing the second virtue: Courage.
First, you may wonder why there’s an image of a pumpkin patch accompanying this blog, and what pumpkins could possibly have to do with courage, right? Let me explain.
My RegentAtlantic office window in our Morristown office faces out to a lovely view—especially in the autumn—of Wightman Farms. I often gaze out at the farm when I’m thinking through complex financial questions. In the fall of 2008, at the height of the last recession, I looked out that window a lot.
What surprised me that season was the sight of so many families visiting the farm to buy large orange vegetables for $50 that they probably would not eat. It was those orange vegetables in the pumpkin patch that gave me immense courage about our country’s financial situation. Why? I remembered that despite U.S. financial challenges, the world wasn’t closing for business. Nowhere close to it.
People were still buying pumpkins for Halloween. The pumpkin patch was generating a lot of sales for the farm. Other companies were doing just fine, too. Amazon was still making deliveries. BP was continuing to pump gas. Starbucks was still brewing and selling coffee.
Most businesses continued to function as usual. That was the key reminder. Business was certainly slower than usual. We still needed gas and coffee; we just bought a little less of it than normal.
Investing in stocks can feel a bit scary—especially when the economy isn’t booming. However, investing in businesses seems much less intimidating. In 2008, you might have been squeamish about increasing your investments. However, if you looked at all the action in the pumpkin patch or Starbucks, you might have felt just fine about investing in companies that we all needed in one form or another. The world was still producing and selling jack-o-lanterns, dried corn stalks and liquid caffeine infusions.
Here’s the point related to the second virtue, though. Every stock in which you invest is just a share of a business. When you look at investments that way, it takes away some of the mystique. In the fall of ’08, I took courage from seeing so many businesses continue to do well. It made no sense to stop investing in businesses, which also meant it didn’t make sense to stop investing in the market as a whole.
As such, I stuck with my discipline of investing in a way that made sense for my own financial situation, and talked with our investment committee about continuing to do the same for our clients.
Signs of a turnaround
Just as the pumpkin patch gave me courage to remain confident in the fall of 2008, my colleagues’ dining habits signaled the end of the market bottom in March 2009.
Every Monday, we typically start the week with a meeting of the firm’s professionals to review investment and planning topics. I remember that on the first Monday in March, I was asking folks what they had done the previous weekend. It seemed like everyone had gone out to dinner. That was new. Why? I think we all decreased our entertainment budgets during the crisis. However, that weekend seemed to mark the end of the dreariness we were willing to absorb without a return to normalcy.
Judicious spending is another key to courage. We all can cut back our budgets for a while, but then our spending habits spring back. Big consumer items, like tires and computers, start to wear out and need replacing. Fortunately, recessions are impermanent and if you are courageous they can also be great buying opportunities. There were some good deals on things like car accessories and electronics as the recession eased up.
Wise Investor Virtue #2: Courage
When I look up the definition of courage, it describes “a quality of mind to face difficulty, danger or pain.” Note that it doesn’t saying anything about being free of fear. You can be nervous and still have courage, particularly in the financial world. What I think can help give you financial courage is having a clear plan. It’s a lot easier to be calm about your portfolio, even during market downturns, when you have a well-defined financial plan that fits your goals and values.
Another way to remain a courageous investor: Don’t panic. You’re not going to make good decisions when you’re panicking about what’s happening to your portfolio. In fact, in a downturn, there are awesome opportunities for calm, courageous investors. Why? Many stocks are essentially “on sale” if you’re brave enough to take advantage of low prices. This is precisely how we invest for our clients. It’s a fundamental piece of our investment strategy.
And that leads us to the third virtue of smart investors, which I’ll discuss in my next installment: Thrift.
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