It takes discipline over time – not just a lucky pick

Not every investment is a Tesla.

Not every investor gets to be a Warren Buffett.

And not every investment offers the same growth history as Amazon stock.

“I think, oftentimes, there is a major misconception that to have a successful investment experience you must identify the next Tesla, Amazon or Crypto,” Babak Gahvari, managing partner at Canter Wealth in La Jolla, California, told Advisors Magazine. “While finding the next home run investment can be exciting, and in some cases, life-changing, what’s often misunderstood among mainstream public investors is the number of strikeouts along the way.

In fact, few investments offer the thrill of a monstrous return. Yet, we are fascinated by the idea that buying “X” stock will provide a secure financial future. Admittedly, we read marketing emails detailing the “latest and greatest” opportunity with great hope and eager anticipation that perhaps a quick fix answer is contained within. We listen to the noise in the financial news and on social media suggesting we turn our investing attention – and dollars – to a sure-win opportunity.

Reality is far from those dreams.

While finding meaningful online data examining how many investment purchases end up being financial duds is sparse, one report did analyze 8,000 stocks over a 23-year period between 1983 and 2006 when the market experienced high and lows but not the erratic, excessive volatility characterizing today’s trading.

SeekingAlpha.com published a study by Blackstar Funds and Meb Faber that reported two out of every five stocks are money-losers, and one out of every five stocks loses at least 75 percent of its value.

Winners Can Lose Too

Investors are hard-pressed to find any one stock as “reliable” as Apple – at least that the general perception.

Yet, in the past 40 years, Apple’s stock has fallen more than 75 percent from previous highs including a 60 percent plunge in January 2009. Ten years later (and one year prior to COVID trashing the American economy), tariffs on Chinese goods sent Apple’s ticker price down 40 percent. Yet, ask most investors to name a sure win and Apple is regularly mentioned. As of July 7, 2022, Apple remained one of the top five in the S&P 500 even though its stock price was noticeably lower than the others in that exclusive category.

Warren Buffet’s Wisdom

The financial press is inundated with predictions regarding market performance.

This isn’t just the case at the start of a new year – when a plethora of “top ten” lists forecast the “best” industry sectors to invest in, what the top disruptors will be, and how new regulations will impact investors – predictions are a year-round, day-in-day out occurrence. Nobody asks their stockbroker to recommend a “loser.”

Yet, the most successful investors don’t give predictions credence in the investment decision-making process.

Perhaps it is time to take some advice from the man dubbed, “The Oracle of Omaha,” aka Buffett whose net worth is estimated to be more than $100 billion as of July 2022.

“There is a saying attributed to Warren Buffett that predictions will tell you a lot about the person making the prediction, but nothing about the future,” Bert Doerhoff, managing member of Aura Wealth Advisors, LLC based in Jefferson City, Missouri, shared with Advisors Magazine.

The point is that predictions – especially financial ones – are often more closely aligned with the opinion of the prediction’s issuer rather than with the reality of the results documented afterwards. And, we all know what they say about opinions: Everyone has one.

Of course, there have been several times when Buffett’s predictions were spot-on – like when he surmised that Bank of America’s 2011 downfall to $7 per share would lead to a mighty return with present-day shares trading above $37, according finance.yahoo.com. Refer to the linked article included here for more of Buffet’s successful investment predictions.

Yet, he has been wrong. He even readily admits his mistakes in correspondence with the shareholders of his mega-company, Berkshire Hathaway.

By the third quarter of 2008, Buffett had more than 84 million shares of ConocoPhillips, after increasing his investment in the oil and gas giant in 2006. Oil was priced at $100 barrel and Buffett was certain he saw a big winner, however, it turned out to be a several billion-dollar loser when oil prices went south, according to finance.yahoo.com. The linked article here discusses other times that Buffet missed the mark.

Why This Perspective?

It goes back to the start of this article: An investor doesn’t need to be Buffett or identify the next Tesla for his or her investments to be successful. Rather, it takes accepting that some stocks are big losers and some are big winners while keeping oneself invested in choices that make gains – maybe even modest gains – over the long haul.

“I simply want the world to understand the markets have always worked over a long-term and delivered a return beyond inflation,” Doerhoff said. “A married couple at age 65 has a joint life expectancy that one will live to age 95. They need a 30-year investment plan so they can enjoy life.”