Seasons in Investing
By TMFLuck ([email protected])
December 15, 2000
Predictability and consistency are something all of us are looking for in our investment lives. Reaching some kind of level of predictable and consistent returns in the management of our money -- whether it be for retirement, college for the young 'uns, or for buying a home or any other large purchase -- is the holy grail of money management. Like the seasons, or lack thereof, that we see in different parts of the world, different investing styles can achieve the kind of climate in which we would like to live. I would like to compare two different styles of investing with specific climates to which I have recently become familiar.
Index fund investing is much like the climate in Puerto Rico. I recently had the opportunity to visit this beautiful island and was interested to learn that they have never recorded any temperature below 68 degrees or above 98 degrees Fahrenheit. Other than the occasional hurricane, you pretty much get the same weather day after day.
This type of investment, where you are putting away money in monthly increments without all the research it takes to buy individual stocks yourself, is well defended against the occasional calamity and is akin to a nice warm lazy day on the beach with a pi�a colada in your hand. When the occasional hurricane does pass by, you are prepared to buy shares in your favorite index fund at cheaper prices. This kind of predictability is something that many of us could use. In fact, for most people, this is a great way to invest. It's simple, low-cost investing for the long haul, and without spending a lot of our precious time worrying about hurricanes, we can instead use that time to lead a full life.
However, some people like to have all four seasons. I have a friend who recently moved from Southern California and has remarked to me that he hasn't seen a different season in a long time, and that he missed it. Many revel in the approach of the different seasons as one anticipates the different courses of a meal in a nice restaurant.
This kind of consistency can be found in individual stock investing -- finding the five or six companies that you feel can be or are leaders in the industries of the future. Rock-solid blue chips that, sprinkled with the risk of an occasional blizzard or heat wave, can bring great rewards. Once again, this style of investing can be outfitted to survive the periods of bad weather. Drip investing in these companies is one way to put money away monthly into these great companies and at the same time have the opportunity to pick up a few extra shares each month when the blizzard or heat wave is present.
In the past, I have given as a gift Investing without a Silver Spoon written by Jeff Fischer. Each time the person receives the book they are amazed at the long list of great companies in which they can directly buy shares with even a very small amount of money each month.
Predictability and consistency are different things to different people. It is important for you to find an investing philosophy that works for you. What matters most to you: the predictability of the same weather each day, or the predictability of a change in seasons?