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Most of the money you will earn is the result of saying "No"

Tuesday 26 April 2016

Emotional conflicts and the daily news are poor sources of advice. Fear dominates. The key to making money here is easy to find:

just say "No"


Whether one buys or sells. The temptations are always there. Bombarded by daily financial news many investors allow themselves to be mislead. The source of the problem can be found in two areas. The first one is the fear of missing out on opportunities, which is an irresistible urge to jump on the band wagon. The second area, is the fear of incurring losses, which repeatedly convinces investors to sell positions and unnecessarily phase-out commitments  which would have been worth keeping for the long term.  This can be observed everywhere: This sort of action has fatal consequences for increasing capital. Nothing great can be built in this way.

 

The financial system is pleased with this

 

The old stock market adage "excessive trading will empty your wallet" has proved to be true. Previously, most of the income of brokerage firms and the exchanges came from transaction fees, That meant, that the more you bought and sold,  the more the industry benefitted. This is especially the case in the United States of America. Most brokers there do not receive a fixed monthly salary. They  only earn a percentage of the transaction fee generated by their clients. It is therefore pointless - with a few exceptions, to ask a financial  advisor, whether  it is wise to buy or sell a particular stock.  This is similar to asking 

the barber if you need a haircut.

 

Genuine private bankers

 

I am fortunate to work with friends for the past two decades who are  fourth generation bankers. The two brothers who grew up in Paris and in Switzerland, who even today are fully engaged in private banking, while also investing their personal wealth.  Nowadays we rarely come across such businessmen. They always  chose international quality and independence. After the Second World War they employed 60 employees, today there are still 62 people working at the bank. They conduct banking business with prudence and are committed. It is not surprising that they survived: The Lehman crisis in 2008,

were a  number of banks collapsed, while other institutions only survived with the help of politicians.

 

Learned at the breakfast table

 

From an early age they listened eagerly at home, at the breakfast table, to discussions from their father and uncles. They learned all about what went bad and good in the world of banking. In other words, everything. One of the principles, which was often expressed was: "Boys, never forget, we make more money, saying - no". This simple phrase covers it all and hits the nail on the head. For an investor, that comes down to this: avoid permanently successful investors and entrepreneurs and also bad as well as mediocre businesses.  Focus on one area of expertise. Your expertise and knowledge in that area will grow. This is also where your endurance and know-how will pay off in the end.

 

The great danger: boredom and irregularity

 

From my years of observation, the root of  poor money management can often be found in professional fields or with private individuals.  Especially people in professional groups, who are often engaged in repetitive or boring work, are at risk. To name just two professions, for example, Dentists and Notaries Public, are bound to their practice or office space. After a few years at work, they lack real challenges. The daily monotony becomes tiresome.

 

Investing and speculating offers an escape into another world. The thrill of a financial adventure is subconsciously sought. The following scenario is at times encountered at home: After many years of family life there is hardly any interest at the dinner table in talk about daily events at work. Neither is there any praise and recognition However phone calls with the Investment Adviser or Investment Manager are far more satisfying. "Yes this person has at least an understanding, knows and appreciates what I'm doing every day."

 

And this is how many successful people become long term amateur financial investors. The end result is usually always the same: In boom times he will pile in at the top and be fully invested at the highest prices. In crashes, like those in 2008 and 2009, he is very anxious and eventually exits at  the exact bottom of the market cycle. He feels unjustly mistreated like a whipped dog.

 

The slippery trading floor

 

Whoever  dares to step on the  slippery trading floor, should first check his emotions with his jacket at the cloak room. Being bored, looking for adventure and being frustrated at work, or suffering a meaningless domestic life -  none of this should have an effect on investing. These issues  should be compensated for

by seeking other interests: Maybe activate a hobby, pursue a sport, learn a musical instrument, be socially engaged in the non-profit sector. I can assure you from personal experience, that my performance in the stock market improved again, when at the age of 55  I started  to take violin lessons. No matter what you choose: For God's sake, do not mess around with your capital.

 

Waiting for big tankers

 

It is not only because of many unnecessary expenses. Investing in every exciting looking opportunity can indeed have far worse consequences. Before you know it, in the course of time you will be fully invested. The portfolio of shares will be overflowing with speculative investments and commitments which went wrong. Sometimes you do not even know why you bought some of those shares in the first place. A typical view of such portfolios: Nothing of strategic consideration, it resembles more like of a shelf full of apples with a bite taken out of them. A sad image.  Without any trace of asset enhancement.

 

One can achieve an infinitely large success both in business and in the stock market.  Only one thing is needed: The knowledge and confidence that excellent

opportunities are offered in life. But only a few of them! I look at it like this: The art lies in waiting  patiently, being at peace and looking out to the sea to wait for big tankers. Then one fine day, they show up and pass us slowly by. Many investors miss this beautiful moment. Or they just do not see the large tanker. Just like failing to notice a dark cloud obscuring the image. It is at this very moment that you need to strike out and take action to grab the opportunity. With adequate capital on hand, now is the time to get on board. These are irreplaceable moments for investors who prepared and anticipated this event.

 

However,  investors who do not systematically maintain this discipline, and constantly invest in mediocre issues cannot be expected to “strike” at the crucial moment.

 

Lessons from 1929 and 2008

 

It has always been the same. At the crucial moment when the mega crisis hits, the best assets, like land and company shares, are virtually given away, as most investors do not have the resources to buy them. It is a well known fact  on the exchange: In times of extreme fluctuations, both in hyper-boom times

when prices are at their peak and even in the depth of a  selloff crash, the irrationality of mass hysteria lasts a lot longer than is thought possible. These are the moments when great fortunes are made.

 

There are the investors, who for a long time - years in fact - always say "no", who make it big. Let me repeat: do not use money for occupational therapy, but only to grab exceptional opportunities when they present themselves!

 

What it comes down to is this - Warren Buffett, the great investor from Omaha, is also convinced of this approach. He does not need my picture

of the "large tanker". For him, every person  already receives at birth  a "Map of twelve" for the journey through life. Whoever is on the ball, can score twelve times right in life.

 

Buffet and I are just inherently and from experiences acquired optimists. But as a friend of mine a long time ago said: "Houses on the best land on Park Avenue in New York are all built by optimists." He's right.