Tuesday , January 22 2019
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The Best Lessons of 2018 – Patience & Discipline

Summary:
All the best stuff in life takes time – love, friendship, wealth, etc. We want all of these things to happen immediately, but the reality is that they all take a lot of work. They take discipline and patience. There really are no shortcuts. The financial markets reminded us of this in 2018. The global stock market finished down about 10% and the US stock market was down about 4.5%. Amazingly, after all the constant fear mongering about bonds, the Barclays Bond Aggregate finished…positive by 0.1%. It was a bad result by any measure, but not unexpected. I’ve been preaching lower future expected returns for quite some time. So a few negative years here and there aren’t surprising. It’s a good reminder – the market needs to go down sometimes. The stock market is like a 20 year 7% super

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All the best stuff in life takes time – love, friendship, wealth, etc. We want all of these things to happen immediately, but the reality is that they all take a lot of work. They take discipline and patience. There really are no shortcuts.

The financial markets reminded us of this in 2018. The global stock market finished down about 10% and the US stock market was down about 4.5%. Amazingly, after all the constant fear mongering about bonds, the Barclays Bond Aggregate finished…positive by 0.1%. It was a bad result by any measure, but not unexpected. I’ve been preaching lower future expected returns for quite some time. So a few negative years here and there aren’t surprising.

It’s a good reminder – the market needs to go down sometimes. The stock market is like a 20 year 7% super high quality bond that only pays you a 2% annual coupon – the rest is paid out as capital appreciation over time. The underlying entities earn that 7% in a very uneven manner and it takes time for them to pay out that 7% so you have to let the market do its thing. And sometimes we get impatient. So impatient that we see the potential for greater than 7%, price that in and then reality sets back in. And prices fall so that they can rise in the future to something more sustainable. That’s more or less how the stock market works. And it takes time to let this all play out.

In my opinion, the best thing about the financial markets is that they teach you patience and discipline. If you’re impatient and undisciplined in this game you will not succeed. And the other players in this game make it even harder for you. The financial media is constantly trying to get your attention. And many financial professionals want you to think short-term because they’re incentivized to have you constantly paying commissions to them. Add in the bias of short-termism and you can begin to understand why most investors can’t come close to beating the market. It’s damn hard, in part because we’re barraged by noise that is trying to separate us from our money.

So, onward and upward. 2019 may or may not be a great year for the financial markets. I won’t pretend to know. But I do know that the patient and disciplined investor will beat the impatient and undisciplined investor who spends 2019 trying to guess every short-term move in the market. It’s just math, man. 

Cullen Roche
Former mail delivery boy turned multi-asset investment manager, author, Ironman & chicken farmer. Probably should have stayed with mail delivery....

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