The cool crowd. When we’re young, most of us feel it’s pretty important to be “cool.” Growing up in my neighborhood, the “cool kids” just seemed to have that certain something.
But what exactly did they have?
Looking back, what I remember most about the cool kids was that they were mature beyond their years. They went against the trends and pushed back against what was popular at the time. But, mostly, when I look back at the cool kids and the cultural icons of the era, they seemed to have confidence that things would work out.
Are you a cool investor?
I sometimes wonder, did some of those cool kids later become good investors? My experience has been that many of the most successful investors are, not coincidentally, also the most laid-back or unemotional people when it comes to managing their money.
I’ve written about behavioral finance many times. Think of it this way: when it comes to investing, the opposite of being “cool” would likely be to act “emotionally.” That is, to jump in and out of the market chasing the latest trends and movements.
How does being cool benefit investors?
As I was reviewing the recent history of the stock market, a few things jumped out at me. There have actually been a lot of times when being cool paid off. Take 2004. The first 44 weeks of that year, the market was almost completely flat. But the last eight weeks of 2004? The market surged 7.2 percent.
Jump ahead to 2014, when the median investor had a 4.2 percent return for the year. Yet in spite of the market being ‘up’ for the year, roughly a third of all investors actually lost money or experienced zero returns.
How could that be when the S&P 500 rose 14 percent in 2014?
The first thing you should know about 2014, was that 75 percent of the upswing in the market occurred in the last 10 weeks of the year. So why the flat returns?
The odds are excellent that many investors just weren’t cool. 40 odd weeks without substantial gains (or even loses) meant that a lot of people got emotional or impatient and pulled their money out of the market. Then the market went up—and it left those who jumped—out in the cold.
Nobody knows for certain what will happen with the markets tomorrow, next week, or next year. But I do know a good approach to investing when I see one. I know what has historically worked well, what hasn’t, and how you can stay cool and in the process help protect yourself from market gyrations.
How might these 3 undeniably cool icons invest today?
Being thought of as cool is probably overrated, especially once we hit middle age, and beyond. But being cool, especially when it comes to investing, is actually an art form worth imitating. With that in mind, here’s a fun look at how the coolest of cool, Paul Newman, James Dean, and Fonzi, might invest in the stock market today.
- Paul Newman recommends a well-diversified portfolio.
One of the most well-known humanitarians of all time, Paul Newman was an actor, race car driver, and, perhaps most noteworthy, as founder of Newman’s Own, an organic food company, helped raise over $400 million for charity. The King of Cool, in spite of making “only” 62 films during his career, which, by current standards, earned him relatively modest paydays, Newman died with an estate worth over $600 million.
- James Dean’s last words: “Take a long-view approach to investing.”
In the 50s, James Dean was the epitome of cool; the sullen loner, collar turned up, walking into the wind and rain. James Dean died in a car accident in 1955 at the ripe old age of 24, leaving behind a relatively modest $100,000. But what’s Dean worth today? Due to shrewd investing, James Dean’s estate earns upwards of $5 million a year.
- Be cool! (Fonzi certainly wouldn’t check his investments every five minutes.)
I would assume that everyone reading this remembers Arthur Fonzarelli from the 70s television show “Happy Days.” Fonzi may have been a bit of a hood, but even his elders turned to him for advice. Fonzi famously reminded Mr. Cunningham to: “Be cool.”
Were Fonzi a real person, he’d not only likely own a chain of Harley Davidson motorcycle outlets by now, but I feel pretty certain that he wouldn’t check his investments every five minutes. Here’s why: Constantly checking your investments is a recipe for disaster. There are several reasons, but here’s three: checking your investments causes you stress, which is bad for your mental and physical well-being. Second, the more you check, the more likely you are to tinker. Bad idea. This can cause you to sell low or buy high. Third, if you are working with an advisor, isn’t that what you pay him or her for? Let them do the worrying, and the tinkering, while you do the living and enjoy your life. Remember: be cool!
When it comes to money and investing, slow and steady wins the race. But what if taking the long-view approach to investing goes against your personality? That could be a problem. Thankfully, we’re here to help.
Whether you’re a client of Hanson McClain, or you have yet to select an advisor, if you are worried about your investment portfolio, or your retirement, give us a call. The reality is that from time to time we all obsess about money. It helps to have someone to answer your questions. Just ask. You may find that you’re a lot cooler than you realize.