“The best antidote to uncertainty is educated optimism.”
“When it comes to investing, a lot of things are interesting without being meaningful.”
— David Booth
I just read the new book written by David Booth. He and a group of Nobel-laureate economists founded Dimensional Funds, a pioneer of index investing. It’s called “Stay Calm: Learn to Embrace Uncertainty in Investing and Life.”
Mr. Booth made a comment that caught my eye: as a 79-year-old with a lifelong career in money management, he has never bought an individual stock in his life. Are you surprised?
Guess what- I haven’t either! (not for myself, anyway.)
Sometimes clients seem surprised when they ask me about individual companies or stock prices and find how little interest I have in that aspect of investment strategy.
Back before online trading was a thing, every day clients would call in to place an order for “X” number of shares of the current hot company. I got my license in the year 2000 so I could place these trades myself. It seemed like a time-consuming, frantic, and often unsuccessful way to invest money. I don't recall being impressed with the results.
I suppose that beyond my earshot, the stockbrokers in their neckties and jackets would be phoning their clients all day to sell them on such trades.
Sounds exhausting! Talk about building a cathedral one pebble at a time.
Research and anecdotes tell me the results of the dubious hobby called "trading" continue to baffle and discourage would-be investors.
David Booth, (namesake for the University of Chicago Booth School of Business) also started out in this model and realized there must be a better way.
He recognized early that successful investing wasn’t about stock picking or forecasting, but creating a plan, trusting the market, and controlling behavior.
Booth's point is that investing isn't solely about numbers—it's about how we respond to uncertainty.
As investors, we naturally want to know what's going to happen next. We look for forecasts, explanations and signals that might give us confidence about what markets will do.
But uncertainty isn't a flaw in investing that we can somehow eliminate. It's part of the deal.
And in many ways, the ability to tolerate—or even embrace—that uncertainty is what allows us to become calmer, more disciplined investors.
We do this in the rest of our lives all the time. We make important decisions about careers, relationships, families, homes and our futures without knowing exactly how things will turn out. We gather the information we have, make thoughtful decisions, prepare for different possibilities, and move forward.
Uncertainty doesn't have to be something we continually fight against.
Learning to accept it can actually be freeing. It can help us resist the urge to react to every headline, market decline or prediction and instead focus on the things we can control.
Mr. Booth recalls the heartbreak of seeing a percentage of investors continually make consequential financial mistakes, due to a emotionally-charged misunderstanding of volatility and risk. I can relate - and I've made it my mission to help everyone become better, calmer, investors.
Calm doesn't come from knowing what's going to happen next. It comes from knowing you don't have to.
Or, as Mr. Booth puts it:
“Plan for what can happen, rather than trying to predict what will happen.”
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk, including possible loss of principal.
Securities and Retirement Plan Consulting Program services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC. Advisory Services offered through Western Wealth Management LLC, a Registered Investment Adviser, dba Kennebec Wealth Management. LPL Financial, Kennebec Wealth Management LLC and Western Wealth Management LLC are separate entities.