“Thomas Aquinas said of suffering, as Aristotle had said of shame, that it was a thing not good in itself; but a thing which might have a certain goodness in particular circumstances. That is to say, if evil is present, pain at recognition of the evil, being a kind of knowledge, is relatively good.”
C.S. Lewis, “The Problem of Pain”

 

Occasionally, it’s important to review our investment philosophy. We do this in our newsletter as well as posts to this blog, and we do it for both our current clients and those who are looking for a different approach to investment management. We believe clients who understand our investment worldview are more likely to understand the “why” behind our investment decisions. This, in turn, will help them stick with our proven investment process. This worldview is made up of several different principles, or beliefs. One of the tenants of our investment philosophy is this: successful investing is painful. If you want to be successful in investing over long periods of time, you will have to endure steady dose of pain along the way. This is the problem of pain. But as Lewis said above, it is a relatively good pain.

Purposeful Pain

Humans naturally gravitate toward comfort. We don’t like to diet, exercise, read, or do virtually anything that requires discipline. Many of those things require us to choose short-term pain (or relatively less pleasure) in exchange for longer-term benefit. Championship athletes will sacrifice leisure time to discipline their physical bodies for competition. Successful entrepreneurs give up money and time to develop what they hope will be an innovative new product on the marketplace. They do this because they believe it will add value to consumer’s lives and lead to business success. Good parents sometimes give up career aspirations to raise their children properly. They do this because they hope their children will turn out more successful than if they had let someone else raise them.

Longer-term orientation endures pain in order to accomplish a greater purpose. In the investing context, this requires “buying low” and “selling high”. People with this mindset are essentially seeking purposeful pain, with the expectation of longer-term benefits.

Purposeless Comfort

On the other hand, most people prefer short-term comfort to long-term success. They are willing to trade immediate comfort in exchange for abandoning their longer-term purpose. Whether it’s the athlete who lacks discipline, the businessman who cooked the books, or the politician on the take, people will trade a longer-term good purpose for shorter-term pleasure.

This is especially true when it comes to investing. It is very comfortable to sell investments that drop in value, or never purchase them to begin with. We call this “selling low”. It is also very comfortable to purchase investments that go up in price. We call this “buying high”. Not surprisingly, then, the wisdom of comfortable investing requires buying at high prices and selling at low prices. This, of course, turns the old wealth accumulation strategy on its head. Shorter-term orientation aims for comfort, but at the expense of success – the ultimate purpose. Instead of purposeful pain, this mindset trades the likelihood of accomplishing objectives for purposeless comfort.

Successful Investing

In order to have purposeful pain, your must have a clear purpose. This purpose must be the over-arching influence driving every decision. When it comes to investing, everyone has an objective. Typically, that objective is either appreciation or steady income over long periods of time. This longer-term strategy needs to dwarf short-term thinking. It needs to control emotional reactions to market fluctuations. It needs to be the overriding determiner of all your investment decisions. As a registered investment advisor, our fiduciary obligations ensure we give you the best possible advice in light of all of the relevant data. Whether capital appreciation or immediate and steady streams of income, our commitment to purposeful pain and a proven investment process will help you achieve your objectives.

 

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