What I think about when I think about investing

Stephen Desmond


3 min read

The discipline of investing – and there’s a lot of discipline involved – conjures many metaphors. Some liken it to baking a cake or making bread because you combine the right investment ingredients under the right conditions to grow a successful portfolio. Others compare it to a rollercoaster ride, where the investor feels the ups and downs of market movements, or the ebb and flow of the tide. When I think about investing, I think about running.

Thinking about investing

When the going gets tough

I used to run a lot. I started out, as many do, simply wanting to get fit and live a little healthier. So I’d go out for a two or three mile jog a couple of nights a week. Initially it was hard work. My first run made my stomach churn and my legs ache. But as soon as I’d stopped and warmed down I felt good.

Soon those three-mile jaunts round the park became easy and I wanted to go further. So I’d push myself to five, six, seven mile runs. Again, I felt that pain and struggle entering these new realms, but every time I’d warmed down, showered and eaten some recovery sustenance, I felt great. I could sense my body strengthen and adapt to these new conditions. Before long a ten mile run was a comfortable weekly event, then I worked my way up to a half-marathon, then a full marathon.

The long run

It was around this time that I also embarked on another endurance event – investing. I quickly discovered there were some astonishing parallels between the two.

The few days after I’d invested my first £5,000 I was full of anxiety. I would scour the stock markets several times a day and log in to my account every morning to check the value of my portfolio. It was agonising, painful stuff. Very much like that first two mile run round the park.

A £30 gain got me excited. I wanted to take it out there and then and spend it. But the emotion was minimal compared to that of a £30 loss. I’d feel isolated, out of control, helpless. I worried that I could lose it all. But, over time, these fluctuations quickly became familiar. They would occur almost every week. Just like those two mile runs, it became the norm.

The fear factor

Eventually I stopped logging in to my account so often. I would do so every few weeks rather than daily. Then one day I logged in to see my portfolio was down £200. This was a far more dramatic change and those old tingles of stress and discomfort returned immediately. It was just like the first time I went out for a six mile run – I was out of my comfort zone and it was hard to comprehend.

But again, in time, I came to realise that such swings are simply part and parcel of the investment journey. They happen quite regularly. Now, I hold no fear for market fluctuations. There have been a number of significant dips in investment markets over the last 15 years, including two big crashes in 2002 and 2008. It may well happen again and I’m prepared for that.

The phrase ‘no pain, no gain’ comes to mind. As does, ‘it’s a marathon, not a sprint’.

Drip, drip, drip

There are plenty of other similarities between investing and running. For instance, it’s good to have a goal, whether it’s running the Berlin marathon in six months’ time or saving for your retirement 20 years from now. And a considered plan for how you can get there. Training regularly and often is crucial to running a marathon, just as investing regularly helps you achieve your long-term financial goals.

This reminds me of Warren Buffett’s take on investing regularly. Buffett neatly explains how our natural instinct to be happy when stock markets are up and unhappy when they’re down, is in fact quite irrational:

If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy seeing stocks rise. Prospective purchases should much prefer sinking prices.”

Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.

 

 

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Stephen Desmond

Stephen regularly contributes to the Nutmegonomics blog – writing about investment and personal finance.


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