The discomfort of investing

The hypo­thet­i­cal investor who cap­tured the entire 128,000% return over the last near­ly six­ty years would have expe­ri­enced plen­ty of dis­com­fort along the way. Disney has seen eight sep­a­rate draw­downs of at least thir­ty per­cent. To be clear, what this means is that on eight dif­fer­ent occa­sions, Disney would hit new all-time highs and then fall by at least thir­ty per­cent.

I came across an arti­cle ‘Totally Absorbed’ yes­ter­day.

I read it, closed the brows­er tab, and moved on in my day. When I woke this morn­ing, it was the first thing on my mind (not to be con­fused with my face, on which lay my son’s foot). I knew I had to share it.

Totally Absorbed speaks to the dis­com­fort of invest­ing. Even “win­ners,” rare as they are, put us through emo­tion­al tur­moil over the life­time of our own­er­ship. Winners like Disney and Apple, who every­one that invests hears about, have been down quite a bit over their life­time. As an exam­ple, Disney has been 20% down from it’s high­’s for 55% of the time. Even though it’s grown an aston­ish­ing 128,000% since its 1957 IPO.

How does that make you feel?

When you ques­tion you plan, keep this in mind. It may feel like you’re always low­er than a recent high.

You are.

That’s how it works.

Up and to the right baby!

As I’ve writ­ten the Elephant in the Room has a Paycheck (buy it here) I’ve been main­tain­ing a sam­ple port­fo­lio, track­ing results and chart­ing them on a month­ly basis. Especially with the recent down­turn, the spread­sheet serves as a pow­er­ful reminder of the val­ue of the Elephant’s Paycheck.

Have a look at the blue line. That rep­re­sents the total port­fo­lio val­ue. (You can see the data on the ‘his­to­ry’ tab of the sam­ple port­fo­lio spread­sheet.) You see how it goes up and down. In fact right after start­ing it dropped — for three months. How’s that for demo­ti­vat­ing. Then it went up — yay! But back down, even low­er than before. Boo. And so on. I mean, it’s an emo­tion­al roller coast­er. But that’s what stock prices do. They go up and down, often with­out any appar­ent rea­son.

Look at the red line though.

Notice any­thing?

It keeps going up. Nice, huh?

Not only great because it means some­thing is grow­ing (it’s the Paycheck!). But also because it keeps us emo­tion­al­ly steady and not whip­sawed by the ups-and-downs of the mar­ket. In fact, tying this back to the arti­cle that inspired this post, if you had pur­chased Disney at the IPO you’d spend more than half your time own­ing the stock down more than 20% — wor­ried, anx­ious.

Don’t tell me how to feel, I love my misery

That’s exact­ly the oppo­site of how being respon­si­ble should feel. And, that’s why The Elephant in the Room has a Paycheck is unique. Not because it uses some mag­i­cal invest­ing tech­nique nev­er seen before. But because it uses tried-and-true tech­niques with unique met­rics to help keep you moti­vat­ed to stick to your plan. To help you under­stand the val­ue of start­ing young and plan­ing for a secure future.

Anyways, back on point. If you read any­thing this week­end, read ‘Totally Absorbed’. It’s short and will help you real­ize that you’re not crazy for always feel­ing anx­ious about how your invest­ments are doing.

Update: Here’s anoth­er post that dis­cuss­es the same sort of long-term pain you can expect, even from the biggest win­ners.