Four Pieces of Jedi Wisdom for Investors
Wealth management and investing is of course a serious responsibility, making sure that we meet client expectations and safeguard their assets. In our latest article however, we thought we’d take a slightly different approach and inject a little levity.
Star Wars is a worldwide phenomenon, with franchise continuously growing in scope since the release of the original film in 1977 to include further films, television spin-offs, books, comics, video games, toys, clothing and more. Star Wars Episode VII: The Force Awakens is scheduled for release this Christmas time and is anticipated to set multiple box office records.
Luke Skywalker undergoes Jedi training at the hands of Yoda to give him the skills that he needs to defeat both Darth Vader and the Emperor. Some of the advice he is given though by his Jedi mentors though can also be applied to the world of investing…
“Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.” – Yoda.
It is arguably the most famous line in Star Wars after Darth Vader tells Luke: “No, I am your father.” It is also sage advice for any investor.
The first sign of volatility in the market and people tend to panic, selling off left and right. The downturn at the end of August is a perfect example of that. The CBOE Volatility Index—also known as the Fear Index—peaked at its highest level since 2011 and doom and gloom reigned in the media (the mainstream, not just financial too).
We believe that Yoda would approve of our approach here at Kruse Asset Management which aims to remove emotion and bias from the investment process. Assets are only bought or sold when our data indicates that it’s the right time to do so.
Don’t just take Yoda’s advice as proof though. Our signature strategy, QVP, has outperformed the S&P 500 for the past ten years at nearly double the rate.
"Already know you that which you need." – Yoda.
What is it that you want from your investments? You should not expect any two portfolios to be exactly the same because we all want something different—if only just slightly—from them.
Do you consider risk to be a good thing or a bad thing? There’s no right answer.
A young person with considerable earning potential in the future may be attracted to a risk-heavy portfolio with the chance of big gains, as well as big losses. Conversely, an elderly couple hoping to leave an endowment to their family when they pass may be happy to stick with predominantly fixed assets for the relative stability and safety they afford.
The important thing is just making sure that your portfolio reflects your financial goals and desires. Feel free to answer a half dozen statistics-driven questions through our Riskalyze quiz to find out what your risk number is and how it correlates to the risk exposure of your portfolio.
“Judge me by my size, do you?” – Yoda.
Whenever you’re considering purchasing an asset for your portfolio, do your research.
It’s nothing but foolish to purchase shares in a company simply because it’s a big company with a well-established name. The same mantra applies to funds offered by large banking houses.
You—or your financial advisor—might think that companies like IBM or Ford are great businesses. They are established. They’ve been around for what seems like forever. That may be true, but that does not necessarily make them great companies to invest in.
Just look at their performance over the past year below against a company with none of their prestige which is often the butt of jokes: Dollar Tree.
The same applies to our performance here at KAM compared to huge investment houses like Goldman Sachs or Morgan Stanley where money managers seek mediocrity. The market goes up; they go up. The market goes down; they go down. We outperform for our clients; we deviate.
Whether it is a stock or an investment advisor, don’t let your judgment be clouded by ingrained perceptions. Look at the numbers and let them tell you what works best for you.
“In my experience there is no such thing as luck.” – Obi-Wan Kenobi.
Luck is not a strategy.
That seems a reasonable enough proposition, and one that applies to most situations, not simply investing. Who’s going to let things be decided just on luck when it applies to anything they actually care about?
Investing on hearsay or feelings is nothing more than that. It’s throwing darts at the wall. That’s why 70-80 percent of money managers underperform the market.
Not only is it irresponsible but we find it galling that money managers are also getting paid for their services when this is the case.
You should not accept mediocrity—or luck—as an option when it comes to your portfolio.
Take this advice from Jedi masters to heart—and don’t be a nerf herder—and you’ll end up with a successful portfolio which meets your needs.