Some of the worst investors can be very well educated and attentive, while some of the best investors may know very little about the markets but always seem to be “lucky” or have an uncanny ability to come out on top. In my career working with investors, I have noticed that the people who trust and have faith create good fortune, not only in investments but in life itself. Blind trust is not what I am talking about, but believing in sound principles and then holding on to them in good and bad times. It is this belief in principle that gives weight to the saying: “If you don’t stand for something you’ll fall for anything.”
Chris Davis, a well-known large value portfolio manager, recently spoke at a conference regarding the ups and down of sticking to his large value discipline. One of his key points is that periods of underperformance are followed by periods of extraordinary growth. By staying true to this principle, he consistently resists the temptation to change his style. Research has proven these investing theories time and time again, yet people resist the evidence. In one particular instance, I was working with a client who continued to fear the markets even after continued education about the principles in investing. Eventually I began to realize that perhaps it was difficult for this client to trust in general due to his own unrelated personal experiences. Trust is not a gender characteristic. It is not bestowed only on the wealthy or even the most educated. It is a belief in oneself that, if you continue to do the right things, you will inevitably produce good results. We believe that trust in the sound principles of investing is one of the single most important ingredients for success in the markets.