On Money & More – March 2023

What makes a good investor? There is no single answer to that question. Some people would say that “luck” is the best course of action, while (similarly) others might say “timing.” We would agree! These definitely are keys to success, but unfortunately they are not something that we can dependably replicate. What about “knowledge?” Peter Lynch, the famous portfolio manager for the Fidelity Magellan Fund (who averaged returns over 29% annually from 1977-1990) described his investment philosophy as “Buy what you know.” Meaning, he liked to invest in companies where he understood their business, products, and management’s vision. While knowledge is a great edge, when it comes to investing, most people don’t have a discernible advantage. After all, information (and misinformation) spreads faster than ever before. What then, would be Cutler’s advice to the typical investor looking for a recipe for success? In a word, we would advocate “patience.”

Patience is not human nature. After all, we are wired for instant gratification- looking for short-cuts to success. As we look around the investment landscape, markets are riddled with “get rich quick” schemes of late. We’ve highlighted a few of these over the years in these pages. With previously ultra-low interest rates and trillions of dollars of stimulus, the temptation for a quick gain had never seemed higher than these past few years. Gamestop, an uninspiring company except for their business of selling video games, famously rallied when a group from Reddit’s Wall Street Bets chatroom decided to all buy it at the same time. The result was a famous short-squeeze (forcing investors who are positioned for a stock to go down to buy it and cover their losses). Day-traders also piled in, trying to make a quick buck. What about NFTs, or Non-Fungible Tokens? Another get rich quick idea for investors was to buy NFTs with depictions of various monkeys on them, and then in turn sell the NFT to someone else for a tidy profit (in retrospect it is easy to see the absurdity of this idea). How do you make money on a short-squeeze or on an NFT? Our answer is only with “luck,” which you already know isn’t our preferred investment advice. We have yet to meet a real investor who made a profit buying bored ape NFTs.

Patience, while not human nature, can be practiced by all of us. And some of the world’s most successful investors have used patience as their edge when building assets. Warren Buffett’s autobiography is riddled with stories of investment success. From scaling up a pinball machine business as a child, to larger successes with Berkshire Hathaway. He chose to name his story “The Snowball,” a reference to his small successes adding up over time. When it comes to investing, focus on these small successes! Dividend payments are small, but they accumulate and build upon each other (an idea referred to as compounding). Savings contributions, such as a 401(k) deposit, are each insignificant. But, as these compound, these small actions are the most powerful way for most investors to achieve long-term success. We know that this advice isn’t exciting, but investing doesn’t need to be. Don’t be in a rush to get to your goals! Patience can get you there over time.

All opinions and data included in this commentary are as of February 10, 2023 and are subject to change without notice.  The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision.   The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.