Standing on the shoulders of giants!

November 12, 2013 Categories: The Way Back Machine
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Standing on the shoulders of giants

Earlier this year I turned 44, which seems both younger and older than I imagined.  I’ve spent the past 25 or so years in the investment field, either as a research assistant or as a professional. No matter my official title, though, I’ve been a student the entire time. Like many, I try to stay fresh and continue learning every day in an area that I love to study. This offers us the unique perspective of “standing on the shoulders of giants,” as Bernard of Chartes wrote (and Sir Isaac Newton made famous). It also means that I am allowed to learn from those who came before me.

As any finance student knows, we all bow at the altar of Keynes, Graham and Dodd, Freidman and on and on. These famous thinkers influence so many of our actions today that their contributions are often taken for granted. However, I believe that, as investors, our thought process and our investment styles are shaped by other mentors in our lives as well. Many of these folks are not from the industry, but nonetheless their thoughts and comments echo in our daily lives.

In my case, my grandfather was one of those mentors. He gave me great advice about using performance as an investment guide. I can still hear his native Texan drawl saying “Son, never back up when you can go forward.” He was actually giving me driving tips after an unfortunate teenage fender bender, but to me, the thought translates to portfolio construction: considering which portfolio can take an investor where they want to go and not where someone else has been.

Another great influence on my approach to investing was the father of a long-time friend. He was a retired insurance executive and loyal Shriner. As he watched us plant saplings as kids one day, he said “There are only two good days to plant trees: 30 years ago and today.”  What wonderful advice for the investor facing difficult markets today. If you want the possibilities of a comfortable shade of financial security, you have to invest as soon as possible.

Just as the mighty oak starts as an acorn, so do most portfolios. Granted, we must consider our portfolio choices more than our gardening choices. But, it should be noted that 30 years from now (or less in most cases) investors will likely be less concerned with what the value of the Russell 1000® Index or the current yield on the 10-year U.S. Treasury bond was the day they started investing, than the comfort of the lifestyle their nest egg may provide today.

The bottom line

It isn’t lost on me that I appreciate the advice of the older generation more at age 44 than I did when I was 18. After all these years of study, I have learned that I know less than I ever did. None of us knows exactly what the next 30 years – or even the next 30 days – hold, but I feel a lot better about the outlook from up here, on the shoulders of these giants.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.


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