Investment Kitchen

“Great works are performed not by strength but by perseverance"

~ Samuel Johnson 

Patience and perseverance seem to be increasingly scarce and disregarded today. 

Technology has given us quick access to ease and comfort; often at the touch of a button.  We get irritated when it takes 5 seconds for a screen to load or if we have to wait in line or for a package to be delivered. 

In contrast, I recently had a wonderful meal at a French restaurant that was all about waiting. The waiter took time to explain the preparation of each course in detail. They described the processes the chef went through to develop the unique textures and flavors. Many of the servings were barely a mouthful but the chef and his team had taken weeks to prepare them. They were able to get textures and flavors out of ingredients that I would not have thought possible. Every step was timed precisely, too early or late and the result would not have been pleasing. When done correctly, the outcome was a wonderfully unique and satisfying dining experience.

In many ways being a good tactical allocator is like being a good chef. A lot of work goes into selecting and combining the right ingredients but the most important part is how and when you combine those ingredients. Both the timing and the mixes are crucial to achieve the desired outcome. It takes patience to let the processes work and play out. 

I bring this up now because I have not made any changes for many months in the TA portfolio. I know what the next move will be because we are at an extreme, but I do not know when it will happen. It is easy when you are watching something too closely, to jump at false signals. Like a young person fishing in a river for the first time, every tug of the current feels like a fish taking the bait. 

Although I may not be making changes to the allocation every month as I did over the first 6 months, this is a time when the decision to hold steady often adds great value. 

Psychologists have found that people in general are about twice as sensitive to losses as to gains.  In other words, the average person would need $2 of gain potential to offset $1 of loss potential. This is not rational but comes from a desire to hold onto what we have already gained. In reality a dollar is a dollar is a dollar.

My system seeks to take advantage of this irrationality. I weigh the potential gains and losses equally. This helps me avoid moving too early and missing out on gains that a more risk averse system would miss.  Over time, if we can treat potential gains the same as potential losses, we will beat the average investor and will be very happy with our results.

Be patient with me.