I mentioned in a prior post here how at one point I chased finding the highest CAGR (Compound Annual Growth Rate) rather than focusing on finding a strategy that I could stick with. In today’s post, I wanted to share another lesson I’ve learned during my years as a private investor which is the value of having resilience. I’m going to speak about resilience in regards to investing here, but it’s important to know that having a poor go of it in the stock market can and will bleed into other aspects of your life. And vice versa.
We all understand that sh*t happens. At some point, there will be a big market correction (or a prolonged tough market for my style) or perhaps a larger holding will disappoint or both. Everyone knows this, but for too long I failed to plan for it.
For many years, I would simply wait for a crisis to happen then white knuckle it through until the end. I would pick up the pieces after and think “boy, I sure made some dumb decisions”. I may have learned something about how to respond to a specific company issue or specific economic issue but nothing on a system level.
Taking the time to put some procedures or guardrails in place has helped me from doom spiraling when the Qs trade down 10% and it felt like the robots were all coming for us. I must be realistic about what I can accomplish during a crisis. My peak performance is far from a rock star. So, in turmoil, my goals are:
Keep my head on when others are losing theirs.
Reducing mental clutter or delaying some responsibilities.
Look for additional support in my day-to-day life so I can focus on investing.
This may mean asking my mom to help watch my kids for an extra day in the week or ordering in rather than cooking (I hate cooking anyways lol).
Aim for a B grade in the middle of a crisis. An A or A+ is unrealistic.
By this I mean a B for my standards (which I think are realistic).
Being productive in realistic doses (likely short, focused bursts).
Setting myself up for success with sleep, diet, and exercise.
Understanding that the goal is survival with minimal long-term scars. That way I don’t just pay the price of admission, I get to enjoy the ride.
Additionally, here are some specific things that have helped me the most when it comes to navigating a crisis.
Know what I own and why I own it.
Generally, the market crashes or company pullbacks are noise but there are some (or at least should be) game changers. If something breaks the thesis then it’s done. Doesn’t matter what price. Quit contract, kill criteria, negative checklist, whatever you want to call it, just have a plan.This doesn’t mean dump everything at the open the next day, but create a plan to phase out of the position.
Plan for rain when the sun is shining.
You can’t learn how to fly a plane and learn how to build a plane at the same time.If you wait until some big event happens before coming up with a plan then you might be going to war without bullets. If I don’t have a plan for the companies right now, it’s best to start planning before all the bad stuff happens. For some, this may be a stop-loss. For me it’s having definitive milestones around the business and limits on position sizing.
Accept imperfection.
It looks so easy in hindsight to see what you should have done. In reality, if you keep your composure when everyone else is losing their sh*t then you will do very well in the long term. For example, how many people actually held Amazon for two decades? Or XPEL from $2 to $40? Most would have been out after it went up 3-5x. You likely sold “too early” and that’s ok. I have worked hard to set realistic standards for myself.
Keep flexibility in my schedule.
This point may or not be possible for you. I think being able to ratchet up or down the amount of brain power you can put into your portfolio is extremely important for me. Sometimes, things run without much need to do anything other than monitoring. Other times, being able to focus on the opportunities can pay off multiples down the road.
Appropriately sized moves.
This is art. Putting a ton of money to work at once only to watch the market grind lower for another 12 months is the equivalent of watching a 6-year-old try and sweep. It’s so painful. Yes, you need to make moves when they matter, but there are times when your opportunity may be weeks, much like the covid crash or over a year like XPEL during the lawsuit and quality days. Believe it or not, it will happen again.
Have a list of companies to buy.
This doesn’t mean buy as soon as a trigger price is reached. For me, these are prices when I would take a deeper look and investigate if this warrants a position in my portfolio.
Invest proactively outside of investing to provide balance.
I can’t do this during a crisis. For example, I’m not going to fix the poor sleep habits I’ve built up in the middle of a crisis. Focusing on sleep, diet, exercise, and some mindfulness year-round are musts for me.
A mentor or network.
Having someone with experience to lean on during a crisis is valuable. They can slow me down and challenge my thinking in a diplomatic way. It’s also nice to know someone has gone through what you are going through and survived.
I hope you got something out of this post and it shed some insight into the importance of resilience as a private investor, or even with your own style of trading. I would love to hear how others think about this topic. Comment down below or shoot me a message.
Thanks for reading.
Dean
And cash. Lots of cash.