Contributed by Doug Walters
It is the season of college commencements, and across the country, celebrity speakers are imparting their vast wisdom on this year’s class of college graduates. In place of our typical Insights format, we reflect on the time-honored tradition of the commencement speech and its application to investing.
Of Risk and Failure
As I scan through the best of the 2018 speeches, a frequent theme emerges: “take risks and don’t be afraid to fail.” When I hear this, the investment manager in me cringes as I envision these young investors throwing money after risky IPOs and ventures that are, more likely than not, doomed to failure. In investing, risks should be well-understood and quantified, which (if done right) should help ensure any loss in value is temporary. This got me thinking; if Strategic’s investment team had the opportunity to send these impressionable minds off into the world with a simple investing message, what would it be? The answer is:
- Start saving early, and
- Focus on the long-term
The first point is obvious; the second is more subtle and relevant for almost anyone, not just new grads. Most investors cripple their investment returns by overtrading, market timing, jumping in late on a bubble, and exiting in fear at the bottom of a crash. A focus on the long-term helps overcome these natural emotional tendencies and capture the market benefits that patient investors enjoy.
Two of my favorite charts to help display this point are below. The first is just simply a picture of the S&P 500 from the time of the Great Depression to today. Thanks to the magic of compounding, the index has grown spectacularly.
The gains of the last decade look dramatic in the above chart, and often we are asked if stocks should be avoided as a result. The second chart puts that question in better perspective. As it turns out, the recent move is not out of the ordinary. If I let my inner MIT nerd loose on the chart, I replot it using a log axis (think of this as making investment returns linear rather than prices linear).
As I was searching through commencement speech examples, I happened across one of my graduations. Click and Clack (the NPR Car Talk hosts) were the keynote speakers (video below – can you spot me in the crowd?). Their message was unique and boils down to this: never get so lost in your work that you forget to have fun. At Strategic, we aim to give you peace of mind when it comes to your investments, leaving you more time for fun and living your ideal life.
1999 MIT Commencement – Jackie & Doug Walters
Radio Hosts Raymond & Thomas Magliozzi
1999 MIT Commencement Address
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