... make lemonade. Sounds easy but it is not. After you have been knocked down you need a lot of resilience to get back up. Resilience is the ability to recover when bad things happen. We usually think of resilience as pertaining to big things like a death in the family, divorce or the loss of a job but it also pertains to the littler, everyday stressful events that don’t go our way.
In the stock market, even the best investors have periods where they find themselves out of favor and underperforming. No investment strategy performs well all of the time. When a different investment strategy comes along that works well and continues to work well for a lot longer than you thought possible, we are tempted to throw in the towel and jump on the new bandwagon. Alan Greenspan spoke about the ‘irrational exuberance’ of tech stock prices in 1996. But tech stocks continued up and did not peak until 2000. “The market can stay irrational a lot longer than you can stay solvent,” Wall Street pundits like to say.
Jumping from a well thought out investment strategy which is temporarily out of favor to one that is the flavor of the month, is not the way to make real money. Howard Marks, the Chairman of Oaktree Capital Management in Los Angeles likes to say, “In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes.” Resilience and courage is required.
If sticking to your investment principles is one important secret of investment success, then another important factor is time. We read every day about twenty-somethings starting companies in dorm rooms and then going public for millions a year later. But in fact businesses take years if not decades to build. Warren Buffett did not achieve his wealth in Berkshire Hathaway by flipping stocks or by market timing, he did it by patiently waiting for good businesses to work out. He had the resilience to be patient through many difficult cycles.
Researchers are learning that resilience, the ability to recover from adversity, is a learned trait not something some are born with and others not. The chart above from Time Magazine offers some good tips on resilience. Worth thinking about both in the stock market… and in life.