It’s January, which means it must be time for New Year’s resolutions. Judging from the ads running on television, not to mention the lack of parking at my gym, weight loss is America’s resolution obsession.
I continue to be astounded at how much weight loss and successful investing have in common. You’ll find no shortage of gurus in either discipline, mostly shouting mutually exclusive approaches. This month the magazines will preach more vegetarian eating, and next month it will be paleo. You need to be doing high-intensity interval training, then you need to be doing yoga and then you need to be doing functional training. The secret is avoiding gluten! No wait, the secret is avoiding GMOs! No wait, the secret is Omega-3s! No wait, the secret is [insert fad here].
Losing weight is a straightforward proposition: 1) eat fewer calories, 2) eat more wholesome food, 3) get more activity and 4) get enough sleep. The peer-reviewed scientific literature is very clear on the matter. It is not about trying something new every month, every quarter or every year. It’s about doing simple steps consistently.
Investing is no different: 1) buy good companies, 2) buy only at attractive prices, 3) avoid unnecessary risk and 4) benefit from compounding over time. That’s it. I didn’t mention whisper earnings. I said nothing about Fed policy. I ignored VWAP and technical analysis altogether. I ignored these things because they don’t matter in the long run. Investing is not about getting more and more complicated, but instead about consistently repeating simple rules that have stood the test of time. Repeating steps one through three will inevitably lead to step four.
People are always trying to analyze my investment performance and reduce it to a single number. The latest theory is that I am choosing a portfolio of low beta stocks. I get this question a lot. The only problem is that I don’t choose low beta stocks. I wouldn’t know how to calculate beta without looking up the formula in a book, and I couldn’t tell you a single beta for any of my holdings. I patiently tell people exactly what I do, but those simple steps never seem to satisfy – there must be some esoteric secret.
Eschew the Quick Fix for Long Term Health
You are living for the long term, so you want to take weight off and keep it off. Over an 80-year lifespan, the 20 pounds you lost and then gained back one summer is irrelevant. Likewise, everyone wants to tell me about the killing they made in the market one year (or quarter, month, day etc.). That one killing doesn’t matter in the grand scheme of things. What matters is your compounding rate over time.
Over the course of the coming year, I hope to recommend any number of stocks. Just know that they will all follow these simple rules. I do the same simple steps over and over. I have ups and downs, but I expect to benefit from compounding over long periods of time. I wish you and yours a very successful 2015.
Alan Stevens is Managing Director of Research and Portfolio Management at Lyons Wealth Management LLC, a Florida-based subadvisor to several mutual funds. He serves as Portfolio Manager for Catalyst/Lyons Tactical Allocation Fund and is Co-Portfolio Manager for Catalyst/Lyons Hedged Premium Return Fund. He also manages several separate managed account strategies and alternative asset funds, including Lyons Tactical Overlay Program. He holds his MBA from Harvard Business School and a BA from Lake Forest College.
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