02 – The One Word That Will Keep You Invested

Fools, I'm going to return today to a topic I try to cover semi-frequently here at Motley Fool Share Advisor: the word 'despite'.

No, you won't see many headlines with that word in it, but it's a powerful concept that can separate really meaningful long-term wealth creation from looking back with regret.

It comes up due to a trio of things that have impacted investors in the past week or so.

First of all, it was last Friday that RFG dropped its latest in a long line of bad news. It was the last straw for us, and once we saw how the market reacted, pricing-wise, we recommended you sell your shares.

Then there was — or still is, depending on your perspective — Donald Trump's tweets. This time it was tariffs. What started as a comment at a press gathering was reinforced on Twitter, despite the protestations of legislators from both political parties.

Rounding out our list — for this week, at least – was softer-than-expected retail sales figures that were only just positive.

And so, on our discussion boards, when I was on Sky News Business and in the media at large, the question people are asking is, in various forms: "Now what?"

And the answers from different people vary. Anywhere from "I told you so", to "We're ruined" and "It's going to get bumpy".

Because, well, those things should mean something, right?

Well, no. At least, not by definition.

Oh sure, if you want to sound smart, you're supposed to say that it'll have an X% impact on the market, creating either an opportunity to 'buy on the dips' or it's 'the beginning of the end'. Bonus points if you throw in reference to the Chinese National People's Congress, the US Secretary of Commerce and at least one obscure economic indicator (NAIRU — the non-accelerating inflation rate of unemployment, as if you didn't know — is getting a good run these days).

And then what?

Well, February's little non-farm payrolls-related market tantrum came and went. China has reinforced its goal of 6.5% GDP growth and well, Brexit is still Brexit.

The more things change, right…

Ah, but now. Now.

Now, things are different, right?

Probably not.

And if they are, it'll be the case that it's finally true after a few hundred false starts. That's a pretty ordinary track record.

Now, I'm very disappointed about the RFG outcome. I'm not going to explain it away as 'business as usual'. Yet, on a macro level at least, I'm not surprised. Because we expect such outcomes from time to time, given our investing approach.

We don't welcome them. We don't like them. But we accept them.

Last week, I was in the US and got to spend a little time with Motley Fool co-founder David Gardner. David is well-known for saying "I have more losers than anyone else at The Motley Fool". You know what else he has?

The most winners.

And the best average.

He's the best performing investor at the company. And he has the most losers. How? Because his approach works, on average and over time. And if that last phrase sounds familiar that's because we use the same one. I don't claim to be David Gardner, but that same approach is the way we invest. It can be summarised in two related statements:

1. We aim for more winners than losers
2. We aim for our average winner to make more than our average loser costs us

Add those together, and we think you'll end up with market-beating performance.

Which takes me back to that word: 'despite'.

Many investors are looking for the obvious investment. The one that falls in their laps and says "I come with no downside, huge upside… and if you buy me you'll be fitter, smarter and more attractive". Okay, maybe not that last bit.

You know the only time that you get those offers? In 1999. In 2007. At times of maximum market exuberance. When everyone feels positive. When no-one can imagine stocks going down and no-one loses money.

You know what comes next, right?

Yep. As Warren Buffett says, you pay a high price for a cheery consensus.

The rest of the time, investing feels scary. Prices are volatile.

Nothing is cheap enough. High quality enough. Risk free enough. 

(Apologies to the English teachers out there for torturing grammar to make a point.)

You want quality? You'll have to pay up. Want cheap? You'll need to hold your nose, because risks abound.

That's what we do every single month. We look for the best risk/reward trade-off we can find. We accept the risk of loss in exchange for the potential for gain.

During our short (in investing timeframe terms) history at Motley Fool Share Advisor, we've invested through concerns of a hard landing in China, high house prices, a mining bust, the risk of Grexit. The vote for Brexit. Donald Trump's election. Predictions of economic calamity. Investment banks saying 'Sell everything'.

If we'd listened? We would have cost ourselves — you — market beating returns. We could have sat on the sidelines and waited for the smoke to clear. The obvious investment to show up. For the news to be unfailingly positive.

In 2011, we wouldn't have invested anything. Nor in 2012. Or 2013. Indeed, we'd have a very clean — and empty — scorecard. And that would have cost you a pretty penny.

Oh, we'd eventually be offered unbridled optimism. And for six months at the peak of the boom — whenever that comes — we'd be popular, profitable… and in for a bruising fall. Presumably, we'd then be encouraged to sell, due to the bad news and pessimism, and wait for the peak of the next boom… You want to sign up to Motley Fool Buy The Boom, Sell The Bust?

I didn't think so.

So, 'despite'.

We invest 'despite' the headlines.

We invest 'despite' the occasional self-inflicted wound. 'Despite' the occasional blind-side.

We invest 'despite' Presidents and Prime Ministers.

We invest 'despite' -exits.

One side benefit, by the way, is dollar-cost averaging: alongside diversification, one of the great 'free lunches' of investing.

We will have more losers. There will be more headlines. And years from now, we'll say "You know, most of the time, we should have just kept investing, and we couldn't have known which times were genuine falls, and which were just fear talking, anyway".

So, we channel our future Foolish selves. We keep investing anyway.

Despite.